Summary by JoAnn Quartararo
Master of Accountancy Program
University of South Florida, Summer 2002
Balanced Scorecard Main Page | Performance
Measurements Main Page | Strategy Main Page
The purpose of this article is to show the importance of, and methods used in aligning a firm’s measurement system to its overall strategy and goals. Fonvielle and Carr discuss some conceptual ideas about alignment and scorecards and provide some specific business examples to illustrate its importance and use.
The Danger of Misalignment
This section includes a discussion by Bob Frost, director of Measurement International, who provides a few points about the alignment and misalignment of an organization’s measurement system with its strategy.
For alignment to occur, Frost says that there are three things that need to happen:
1. "People have to know about it,
2. People have to care about it,
3. People have to be able to act on it." (p. 5).
Frost goes on to talk about the forms of misalignment listed as follows:
1. Unstated disagreements about how the goals should be reached.
2. Warring camps exist.
3. Members are unconvinced of the need for the proposed action.
4. People don’t know what the goals of the organization are.
Finally, Frost presents the problems with misalignment. He says that when alignment is lacking, new programs run a high risk of external failure and typically fall into disuse overtime. Also, without management’s support and consistency, employees’ commitment to quality will usually deteriorate, their individual objectives will take precedence, and their morale and productivity will diminish overtime.
Cascading Strategy and Scorecards
The cascading strategy refers to the strategic alignment process. Fonvielle and Carr say that in order to be effective, this process must start with top management and cascade downward "unifying direction for units and functions, teams, and ultimately individuals" (p. 6). The graphic below conveys the idea.
The most critical step in the alignment process is tying performance measures to the strategic goals of the organization. The authors suggests that the best way to do this is by using a balanced scorecard. They present an example of General Motor's European scorecard implementation that included eight business units, twelve separate functions and twenty-five national sales companies in different countries. They also comment briefly on Mobil Oil Corporation's model for the personal scorecard that relates to the lower part of the cascading strategic alignment illustration above.
Measuring Performance
A performance measurement system helps all levels of an organization understand what is important. The article describes three ways that this importance is manifested, which are as follows:
1. "Performance measures should be aligned with the organization’s strategy.
2. The scorecard itself is a powerful mechanism for aligning the organization with the strategy.
3. Executives must be aligned around the performance measurement system or scorecard before it can be effective or fully institutionalized" (p. 7).
This section also notes the phrase "You get what you measure" (p. 7). In this context it refers to having a strong performance measurement system as the basic foundation for an effective management system.
Organizational Alignment
Organizational alignment is important in an organization. Without sufficient alignment the goals of the company will not be taken seriously. Employees may look at the goals as "insufficiently strategic, a threat to job security, or requiring more work without obvious reward" (p. 8). Therefore, the employees need to understand the organizational goals and the means to achieve them.
There is an example in this section that includes some comments from Martin Shotbolt, the leader of General Motors Europe’s Information Systems & Services Change Management Team. Shotbolt talks about his company’s use of the balanced scorecard. He says, "Strategic performance management concerns alignment, innovation, and translating our vision and strategy into action by using the balanced scorecard process." He goes on to say, "We use this process to expand the meaning of our objectives organization-wide and put measures against them so that people understand what the business is trying to achieve" (p. 8).
Finally, in this section the article provides a list of what an effective performance measurement system should be able to do. This list is as follows:
1. "Identify the strategic goals and actions around which alignment is needed.
2. Align customer, employee, operational, and process measures with strategy.
3. Serve as a means to communicate the strategy to the organization.
4. Establish accountability and ownership for results throughout the organization.
5. Link strategic objectives to long-term targets and annual budgets.
6. Translate strategy into departmental, team, and individual goals.
7. Link compensation and rewards to performance against strategy" (p. 8).
Building Commitment
This section has to do with all levels of the organization being in line with the performance measurement system. The success of the development, implementation, and institutionalization of this system are based on the alignment and commitment of all employees.
In addition, this section indicates a two-fold challenge for companies with respect to building commitment. First, it is a challenge "to make sure that a strategy exists and that it is appropriately communicated and understood" (p. 9). The second challenge deals with "[putting] in place mechanisms and processes to direct and steer alignment" (p. 9).
Tools and Techniques
In this section the authors discuss the three key steps in building commitment to a scorecard. These steps include assessing the state of executive alignment, gaining executive commitment, and driving commitment down and across the organization.
With respect to executive alignment, the article discusses two questions that arise. One is whether the executive group is aligned around strategy. The other deals with whether the executive group is aligned around the need for a strategically linked performance measurement system.
In dealing with the task of gaining executive alignment, there are a few tactics that are useful. An important tactic is educating the key decision makers about the need for performance measures. In addition, recruiting a high-level person to serve as a champion for the idea to help promote it. Another tactic deals with preparing a business case that demonstrates the need for the particular initiative.
After the executives have learned about and accepted the need for such performance measures, the next step is communicating that need to the rest of the organization. This step can be accomplished by using the same methods used for the executives. For example, education via books and seminars is very helpful.
Six Steps to Alignment
This section discusses six steps to achieve alignment in an organization. These steps are as follows:
1. "Articulate the key strategic drivers of your business and the main areas of focus that will make your organization successful.
2. Define critical strategic goals that you perceive should be deployed throughout your organization.
3. Develop performance measures for each of these key goals.
4. Ensure that everyone understands the measures of both their department and their company and how they are all linked together into the strategy.
5. Link each of these measures to a formal feedback and recognition system, and communicate the results regularly.
6. Formally review the goals’ performance often, and develop corrective actions to ensure that they are met" (p. 13).
Also, this section talks about two system considerations that are important when in alignment. These include effective communications and rewards and recognition. With communications, an organization needs to be able to transfer information from one person to another in order for alignment to be effective. In regards to rewards and recognition, an organization should tie some part of compensation to the performance measures as a means to further drive employee behavior in the appropriate direction.
The System’s Power
In this section the authors basically sum up the importance of having a strategically linked performance measurement system. They say that "Much of the power….lies in its ability to forge alignment among units, functions, and individuals" (p. 14). However, before this system can be implemented, the key decision makers need to reach alignment around the system’s need, form, and content.
Conclusion
In summary, performance measurement systems, such as the balanced scorecard, are useful in uniting the organization in an effort to achieving success. The successfulness of the measurement system depends on the extent to which the entire organization is aligned with the overall goals and objectives of the company.
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Related summaries:
Kaplan, R. S. and D. P. Norton. 1992. The balanced scorecard - Measures that drive performance. Harvard Business Review (January/February): 71-79. (Summary).
Kaplan, R. S. and D. P. Norton. 1993. Putting the balanced scorecard to work. Harvard Business Review (September-October): 134-147. (Summary).
Kaplan, R. S. and D. P. Norton. 1996. The Balanced Scorecard: Translating Strategy into Action Boston: Harvard Business School Press. (Summary).
Kaplan, R. S. and D. P. Norton. 1996. Using the balanced scorecard as a strategic management system. Harvard Business Review (January-February): 75-85. (Summary).
Kaplan, R. S. and D. P. Norton. 1997. Why does business need a balanced scorecard? Journal of Cost Management (May/June): 5-10. (Summary).
Kaplan, R. S. and D. P. Norton. 2000. Having trouble with your strategy? Then map it. Harvard Business Review (September-October): 167-176. (Summary).
Kaplan, R. S. and D. P. Norton. 2001. Transforming the balanced scorecard from performance measurement to strategic management: Part I. Accounting Horizons (March): 87-104. (Summary).
Kaplan, R. S. and D. P. Norton. 2001. Transforming the balanced scorecard from performance measurement to strategic management: Part II. Accounting Horizons (June): 147-160. (Summary).
Kaplan, R. S. and D. P. Norton. 2004. Measuring the strategic readiness of intangible assets. Harvard Business Review (February): 52-63. (Summary).
Lipe, M. and S. Salterio. 2000. The balanced scorecard: Judgmental effects of common and unique performance measures. The Accounting Review (July): 283-298. (Summary).
Lipe, M. G. and S. Salterio. 2002. A note on the judgmental effects of the balanced scorecard's information organization. Accounting, Organizations and Society 27(6): 531-540. (Summary).
Lyons, B., A. Gumbus and D. E. Bellhouse. 2003. Aligning capital investment decisions with the balanced scorecard. Journal of Cost Management (March/April): 34-38. (Summary).
Martin, J. R. Not dated. Balanced scorecard concepts. Management And Accounting Web. Balance Scorecard Summary
Martinsons, M., R. Davison and D. Tse. 1999. The balanced scorecard: A foundation for the strategic management of information systems. Decision Support Systems (25): 71-88. (Summary).
Norreklit, H. 2003. The balanced scorecard: What is the score? A rhetorical analysis of the balanced scorecard. Accounting, Organizations and Society 28(6): 591-619. (Summary).
Paladino, B. 2007. 5 key principles of corporate performance management: How do Balanced Scorecard Hall of Fame, Malcolm Baldrige, Sterling, Fortune 100, APQC, and Forbes award winners drive value? Strategic Finance (June): 39-45. (Note).
Porter, M. E. 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors. The Free Press. (Summary).
Porter, M. E. 1996. What is a strategy? Harvard Business Review (November-December): 61-78. (Summary).
