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CASE STUDY The Case Of The (UN) Balanced Scorecard Continued.. THE DISCUSSION SANJIV ANAND
Additionally, some experience in working the Scorecard is required since the objective of using it is to identify performance-measures that work, and are inter-linked. The latter requires that they be classified as lead- and lag-indicators, or measures related to the cause and the effect. An internally-designed Scorecard, based on far-from-transparent inputs from senior managers, will result in the selection of incorrect performance-measures even while missing the linkages. The result is an incorrect model. Each of Evergreen's subsequent problems flows from here. For instance, consider the company's concern about the threats that increasing wage-costs and an over-dependence on a few customers pose to its competitiveness. A correctly-designed Scorecard would have addressed these issues. An experienced creator would have inserted an objective that focused the business on being a value-added provider of services. The resulting primary measure would have been `x' per cent of sales from solutions. Nor would have a seasoned creator left it at that. The follow-up would have been a series of objectives in the other "Perspectives," as the Scorecard terms them: the development of value-added products, and the enhancement of skill-sets. Similarly, a correctly-designed Scorecard would have addressed the over-dependence issue with a measure on "Sales From New Customers In The Last 24 months." The second critical issue involves the understanding of the concept within the organisation. If the Scorecard is cascaded down to the individual level--this does not happen in a corporate-level Scorecard--it will measure individual performance. At the corporate level, it is important to understand that it is a corporate performance-management system, not an individual performance-measurement system. It aligns the skill-sets and personal objectives of the organisation's employees with the strategy that is to be implemented. Of course, things get complicated when implementing a particular strategy requires skills that do not exist within the organisation. In that case, a number of learning initiatives need to be taken up to upgrade both individual and organisational skills. Our experience at Renaissance proves that it is best to link compensation to the Scorecard at a secondary stage after it has been institutionalised, and the quirks have been removed. It is common to have some measures in the original Scorecard that are perceived to be critical to delivering strategy, but you will find--usually, after using the Scorecard for 6-8 months--that there were other, more appropriate measures. Meanwhile, if you have already gone ahead and introduced compensation-linkages, it will be hard to undo the system. Evergreen's third fault is a lack of recognition of the true value of the Scorecard. It is a management system, not a performance-measurement system. Nor is it an operations-oriented initiative, such as erp or TQM. It is difficult for a group of intelligent senior executives to identify a set of non-financial performance-measures. Besides, the Scorecard is a lot more than that. For one, it is designed to reflect the strategy of the organisation. Secondly, the objectives--or parameters--are carefully selected to balance the cause-and-effect relationship within an organisation. If all the objectives selected are lag--or effect--indicators, the technique will be of no value. Additionally, the measures that support the technique have to be carefully selected, where, again, Evergreen has erred. It has selected measures that are easy to measure rather than letting the Scorecard drive the measures. Our experience shows that it may not be possible to implement all the measures immediately. Rather than drop the measure, and select an easier one, the solution is to pick proxy measures that reflect the original measure, and use them till such time that the latter can be included in the system. It is important to recognise that TQM, ERP et al are all change-management initiatives whereas the Scorecard is not. It is a management system that encompasses all the initiatives in an organisation. In fact, one of the biggest benefits of a Scorecard-exercise is that it takes an inventory of initiatives in place, and reviews their linkages to strategy. All too often, we find that there are initiatives that have no linkages to strategy, and can be discontinued. Measurement data generated from the TQM Model should be integrated into the Scorecard. In the Indian--and, specifically, in Evergreen's--context, where the quality and completeness of strategy-formulation is, often, inadequate, the Scorecard's role as an "assessor" of strategy is significant. It can serve as a tool for both strategy-formulation and implementation. Evergreen may not have recognised this, and has, therefore, created a Scorecard with incorrect strategic objectives. If Evergreen intends to use the Scorecard the way it should be used--as a strategy-management system in the company--it needs to tap the expertise of a consultancy that has experience in implementing the idea globally. Over time, as the company gains insights into the mechanics of the Scorecard, it can internally attempt to implement most, but not all, the Scorecards that will be created as the process cascades down to the level of the Strategic Business Unit.
Of course, the company's biggest blunder was in linking the technique to performance-appraisal and compensation-packages. A performance-monitoring mechanism that has not been tested for acceptance, equity, transparency, and objectivity, will, obviously, raise suspicion and create problems in an organisation. Indeed, this is invariably true of even routine appraisal-measures. Pant should have used the initial years of the company's experience with the tool to secure its across-the-board acceptance. This trial-period could have been used by the company to provide to its employees demonstrative evidence of the role of the Scorecard in achieving corporate objectives. This would have eliminated stress across the organisation, and made the implementation of the concept that much easier. The Scorecard has its virtues in an organisational context. It helps every employee see The Big Picture---not always an easy task for managers. Everyone in the organisation becomes customer-centric because the technique links financial performance to customer satisfaction. It recognises the crucial role innovation plays in the success of a company. And, above all, it factors in the role people play in achieving business objectives. A Scorecard is, in effect, a nice bridge that links short- and long-term goals, and financial and non-financial objectives by encompassing, in its sweep, all the stakeholders in a business: shareholders, employees, suppliers, and customers. Where the concept scores is in its ability to get everyone to view issues in the proper perspective. This is particularly true if the situation involves a conflict of interests between functions or departments. Consider, for instance, a product-launch. The marketing team would be keen on a time-bound launch, irrespective of the constraints, while the quality department would be keen on ensuring that the product conforms to customer-specified norms. The failure to launch the product on time will, obviously, hit sales volumes, which would, in turn, impact the company's growth and profitability. But a failure to sort out quality issues will lead to poor customer satisfaction in addition to increasing the costs of quality. What should an organisation do when facing such a problem? Should it follow the diktats of the marketing manager or the quality controller? A Scorecard sets the priorities right by reinforcing the broad linkages between functions, and their relevance to business goals. In this particular case, it will be able to indicate which decision--launch or hold--will help the organisation in the long run. However, in their enthusiasm to develop and implement a Scorecard, corporates are likely to go overboard in 3 directions. It is pertinent to bear in mind that this technique is only one of the many tools at the disposal of managers. It is no substitute for managerial initiatives. Nor is it a replacement for other improvement drives--such as TQM, JIT, or BPR--each of which has its unique role to play in enhancing corporate performance. In fact, to answer Pant's specific question about the technique causing an information-overload, I see no conflict of objectives between a Scorecard and the EFQM Model adopted by Evergreen. Both are compatible as long as there is clarity about what the company seeks to achieve from each. Secondly, any company that has just adopted the concept is prone to underplay financial measures. This can be quite dangerous. No company can compete in the absence of strong financial fundamentals. It is important not to lose track of this while designing and implementing the Scorecard. Finally, the format is not sacred. Over time, every format keeps changing. Pant should immediately initiate an extensive communications exercise, targeted at all his employees, so that they understand the benefits of the tool. Simultaneously, he should select a pilot project, which can be administered easily and, preferably, where the benefits are seen in a tangible way in the short run. Most well-managed Scorecard initiatives start with such a project. That will not only allay any apprehensions in the minds of his employees, but also ensure their willing participation in the implementation of the tool. Once that is achieved, Pant can think of enhancing the scope of the technique to include more measures.
Second, Scorecard measures are not static; they MORPH with the changing business dynamics. That is what makes it contemporary. Third, the technique is a means of implementing corporate strategy. This means that you first need to have a strategy, and, of course, a vision in place. The relevance, and the relative importance of the various measures used in the technique is a function of the strategy. In short, strategy bestows the concept with a sense of direction and purpose. Without a strategy in place, the tool must work in a vacuum, which is not only self-defeating, but also detrimental to the larger interests of the organisation. While there is a strategy in place at Evergreen, Pant must revisit it with the purpose of defining it in greater detail, and secure, in the process, a buy-in from his people since, in my view, the Evergreen Scorecard lacks balance. It is tilted heavily in favour of the People factor. This is justified to an extent because Evergreen's strategic intent is to "build long-term relationships with employees and customers." But the emphasis on the other measures is inadequate, and that is what imbalances its Scorecard. It would be futile to build long-term relationships with customers who do not contribute significantly to the company's profits. Or to focus on people-management without any emphasis on learning. I would, therefore, suggest the following additional measures that Evergreen should incorporate into its Scorecard, even while redefining its strategy. FINANCIAL MEASURES:
CUSTOMER MEASURES:
LEARNING MEASURES:
The problems associated with designing and implementing a Scorecard are two-fold: knowing what constitutes performance, and identifying the right measures of performance. Clarity on these issues should be followed up by effective communication across-the-board. Evergreen, for instance, should explicitly state what it hopes to achieve by deploying the technique. Companies don't always need external help in designing and implementing the Scorecard which is, after all, unique to each organisation. Where an outsider helps is in providing conceptual clarity--and that seems to be lacking inside Evergreen.
The Scorecard is not just a bunch of inter-related measures; these measures reflect the company's strategy. While Evergreen does have a vision, it seems to lack the second-layer operational goals that flow from this vision. This is the trap that Pant has fallen into while implementing the concept. I also do not see what strategy Evergreen proposes to use to achieve its vision; not surprisingly, most of the company's operational initiatives are misaligned. Under these circumstances, the Evergreen team seems to have picked up the available measures and information, and constructed a Scorecard by fitting them into a template. No thought has been given to articulating and communicating the company's strategy, even at the senior management level. The implementation, obviously, will suffer. Whether external consulting would have helped is debatable. Not all Scorecard Consultants are equally competent when it comes to the strategy bit. Often, the strategy implemented in the technique is based on the limited understanding of the industry and the company by external consultants. If Evergreen does decide to use the services of an external consultant, it should choose either a firm or an individual who understands both the industry (software) and the company (Evergreen). A limited understanding of the strategy and the linkages between the measures used in the Scorecard are the common reasons behind the failure of such projects. The concept appears to be deceptively simple in published literature; in reality, it is treacherously complicated. Understanding the cause-and-effect relationships between the various elements of the Scorecard is not easy. To add to the woes of self-taught experts like Pant, the printed word oversells the conceptual bit (strategy), and downplays the process (cause-and-effect relationships). Every company that has ever implemented the Scorecard, like Evergreen, has faced the problem of not being able to measure the parameters that it actually wants to measure. However, what everyone seems to forget is that measurement is the second phase. The tool requires a company to align organisational initiatives, new or old, towards achieving the company's objectives. Measuring how these initiatives have performed comes later. I do not think identifying measures alone, is an adequate substitute to actually launching initiatives. Pant's approach is also lacking. He appears to be content to restrict his participation to defining the measures, and monitoring the process through regular reviews. Not surprisingly, the hard decisions and actions that need to follow the identification of the measures have been ignored. And the Scorecard, certainly, cannot succeed if the fundamental understanding of the senior management--especially the CEO--is either flawed or fragmented. Pant also appears to be confused over the several techniques being used at Evergreen. The EFQM model of TQM-assessment is a fine tool for assessing business excellence. It does a good job of measuring the effectiveness of processes (which it calls enablers). Indeed, various elements of EFQM--such as leadership, people development, strategy-formulation, resource management, and process management--are essential pre-requisites to building a good business. The Scorecard takes it for granted that this foundation already exists. In that sense, the EFQM assessment is a macro-audit that companies need to go through once a year; the Scorecard, however, is a continuous performance-measure. Several EFQM winners have, in fact, used the Scorecard to support their efforts. Incidentally, Pant also thinks of Evergreen's TQM and human resources development initiatives as things that can run parallel to the Scorecard-implementation. This indicates a fundamental flaw in the way he views the concept. The Scorecard is not another initiative that Evergreen can add to its list of initiatives already in place; it is a way of linking initiatives towards achieving the organisation's strategy. Thus, Evergreen's Employee Satisfaction Survey, TQM evaluation, and Intellectual Capital measure will all be part of the Scorecard. At Godrej-GE Appliances, we avoided most of the mistakes Evergreen made primarily due to the fact that we had external consultants facilitating the implementation of the concept. I would, therefore, recommend that Evergreen find a competent consultant, at least in the initial stages of Scorecard-implementation. This will help it avoid all the mistakes it has made in its first attempt at implementing the Scorecard.
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Evergreen Software (Evergreen) has made a series of strategic errors in the
implementation of the Balanced Scorecard. The first is in its attempt to implement the
concept on its own. There is a reason why a Scorecard cannot be implemented internally.
The first phase of execution requires the team designing a Scorecard to meet the company's
senior managers, and discuss their opinions about the company's strategy. An in-house
design team will not work as you cannot expect complete transparency between peers. 
Evergreen has, clearly,
bitten off more than it can chew. Despite using the Scorecard to link its vision and
strategy with individual performance, Evergreen finds itself in this predicament for 2
reasons: inadequate buy-in from employees, and the lack of groundwork before setting the
concept in motion. Undoing the damage will not be easy. 
At the outset, I would like to make three points. First, the measures used in
a Scorecard are always arranged in a hierarchical mode. It is the pyramidal structure of
its reporting that gives the concept its richness. The measures that would interest the
top management are fewer, but qualitatively more significant. The measures that would
interest the operations, or middle-level management involve detailed number-crunching. A
Scorecard, as a whole, will incorporate many measures. The actual number varies across
organisations, and is a function of size, business profile, and the critical
success-factors. But any report is customised for its end-user. It presents only those
measures that are appropriate to the relevant target-group. 
Having just implemented a Scorecard ourselves, this is an extremely
interesting situation for us at Godrej-GE Appliances. I am sure that any organisation
trying to implement the Scorecard is driven, like Evergreen, by an overriding imperative.
In our own case, we had to transform ourselves into a lean, mean, consumer-driven machine.
The Scorecard focuses all the company's initiatives under a single template so as to give
each initiative its proper priority and, at the same time, show each individual in the
team how he/she can contribute to what the organisation is striving to achieve. 
