Measure What Matters

A P Q CI N T E R N A T I O N A LB E N C H M A R K I N GC L E A R I N G H O U S E

AMERICAN PRODUCTIVITY & QUALITY CENTER123 NORTH POST OAK LANE, HOUSTON, TEXAS 77024-7797 713-681-4020

2000 AMERICAN PRODUCTIVITY & QUALITY CENTER. ALL RIGHTS RESERVED.

Measure What Matters:Aligning Performance Measures

with Business Strategy

CONSORTIUM LEARNING FORUMBEST-PRACTICE REPORT

Copyright 1999 American Productivity & Quality Center. Please see disclaimer.

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COPYRIGHT2000 American Productivity & Quality Center, 123 North Post Oak Lane, Third Floor, Houston, Texas77024-7797. This report cannot be reproduced or transmitted in any form or by any means electronicor mechanical, including photocopying, faxing, recording, or information storage and retrieval.

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ISBN 1-928593-30-5

STATEMENT OF PURPOSEThe purpose of publishing this report is to provide a reference point for and insight into the processes andpractices associated with certain issues. It should be used as an educational learning tool and is not a recipeor step-by-step procedure to be copied or duplicated in any way. This report may not represent current orga-nizational processes, policies, or practices because changes may have occurred since the completion of the study.

Measure What Matters: Aligning Performance Measures with Business Strategy 2000 APQC2

M E A S U R E W H A T M A T T E R S

Project Personnel

Project TeamCarmen Clarke, Neil PeltierAmerican Productivity & Quality Center

Information ServicesNancy FleshmanAmerican Productivity & Quality Center

Study ExpertiseArthur M. SchneidermanArthur M. Schneiderman Consulting

Rick MartinBest Management Practices Consulting

Contributing AuthorsCarmen Clarke, Neil Peltier, Arthur Schneiderman

EditorsSusan Elliott, Paige Leavitt

DesignersConnie Choate, Victoria Wirz

3Measure What Matters: Aligning Performance Measures with Business Strategy 2000 APQC


Contents of Study Report

4 Sponsor and Partner OrganizationsA listing of the sponsor organizations in this study, as well asthe best-practice (partner) organizations that werebenchmarked for their innovation and advancement inperformance measurement.

6 Executive SummaryA birds-eye view of the study, presenting the key findingsdiscovered and the methodology used throughout the courseof the study. The findings are explored in detail infollowing sections.

13 Participant HighlightsA comparsion of the sponsor and partner groups acrossseveral dimensions.

19 Key FindingsAn in-depth look at the nine key findings of this study. The findings are supported by quantitative data andqualitative examples of practices employed by the partner organizations.

67 Critical Success FactorsAdditional important features of the partners balancedscorecards.

75 Partner Organization ProfilesBackground information on the partner organizations,as well as their innovative performance measurementpractices.


Sponsor Organizations


Blue Cross/Blue Shield of Michigan

New York Power Authority

CASE

Oklahoma Gas & Electric

CIGNA

Sara Lee Corporation

Eastman Kodak

PP&L Resources

General Motors

Ricoh Corporation

LifeWay Christian Resources

Trebor Bassett LTD

Lutheran Brotherhood

United States Postal Service


Partner Organizations


3M

The Boeing CompanyCommercial Airplane Customer ServiceOrganization

CaterpillarWheel Loader and Excavator Division

* City of Charlotte, North Carolina

GTEHuman Resources Organization

* Merrill Lynch Credit Corporation

Nortel NetworksCanadian Customer Service Division

* Solvay Polymers

* USAA

* Not site visited; represented in quantitative data only.


Executive Summary

early 15 years ago, the unspeakable was finally spoken, and members of theaccounting profession began to acknowledge what was already well known tooperating managers: Traditional financial tools alone were inadequate for

prospectively managing contemporary organizations. This recognition was triggeredby the emerging popularity in the Western Hemisphere of Total Quality Managementand its dependence on nonfinancial measures, particularly in manufacturing.

Two threads emerged from this long-awaited awakening: activity-based costing(ABC) and what eventually became known as the balanced scorecard. ABC representsan attempt to more realistically link costs to the underlying realities of operatingprocesses and their usage of what economists call the factors of production: labor,materials, capital, andmore recentlyknowledge. The balanced scorecard attemptsto integrate critical nonfinancial performance measures into the basic managementstructure of the organization.

The balanced scorecard is a tool for quantitatively defining and managing themost effective indicators of future strategic success. It can be used to rally organizationaleffort around the few activities that are most vital to this success. It therefore is amultifaceted tool that, in principle, can be used for communication, alignment,improvement, and control.

To guide practitioners, the traditional balanced scorecard organizes measures intofour interrelated perspectives: financial, customer, internal, and learning and growth.The theory behind it is that to achieve financial successthe ultimate purpose of theorganization, according to scorecard advocatesorganizations must satisfy theircustomers. To satisfy their customers, they must optimize their internal value-creatingprocesses. To optimize these processes, organizations must learn and their employeesmust grow in their individual capabilities. Although this has been the dominantbalanced scorecard structure during the 1990s, other logic paths have provedincreasingly useful for some organizations.

But as appealing and simple as it appears, implementation of the balanced score-card has proved to be a challenge for most organizations. It is the quintessential exam-ple of the phrase Its simple, but not easy. Part of this difficulty is the scorecards relianceon logical causal linkages to relate metrics to strategic objectives. This logic breaksdown if any link in the chain is weak or ill-defined. For example, some organizationsfind that they have not effectively articulated their strategy in the first place, so they lack

N



the foundation needed for a compelling story. Others find that complexity masks thereal drivers of success so that the resulting scorecard metrics are unconvincing.

A third difficulty lies in the scorecards dependence on changing the organizationalculture. Measurement affects behavior, for better or worse. Changing measurementsfrom a one-dimensional emphasis on financial performance to a more balanced empha-sis on an appropriate mix of financial and nonfinancial measures has significant cul-tural implications, ranging from changes in individual compensation and careeradvancement to increased dependence on teamwork. So, like any other culture changeinitiative, it brings with it a set of challenges to successful implementation.

It takes a strong and convincing agent to overcome an organizations inertia orresistance to change. In most Western organizations, the person at the top must havethe final word on the scorecard contents and the achievement of its goals. However,leadership takes on different forms in different organizations. If theres one area inwhich top managers need to get their collective hands dirty, it is the balanced scorecard,since they are the owners of the organizations strategy and they must ensure that theresult guide the entire organization in the chosen direction.

An organizations immune system ensures stability and resists wasteful, whimsicalchanges. To break down this immune system, there must be a sense of urgency and aconvincing argument that the proposed solution will, in fact, mitigate the source ofthat unwanted urgency. Internal success stories, resulting from pilot implementa-tions and told by their champions, often provide that required proof. Systemizationof the new approach, training and education, and information support systems facil-itate the approachs diffusion and maintenance throughout the organization. Rewardand recognition of successful proponents reinforce the desired change.

The best-practice partners observations reflect the challenges and concernsassociated with initiating the balanced scorecard and its set of associated performancemeasurements. Of our three data sources survey results, site visit reports, and debrieffindings (discussed further in the methodology section of this executive summary)the third provides a view of the best-practice organizations through the eyes of prac-titioners newly embarked on the journey. Immediately following each site visit, thestudy team held a one- to two-hour debrief with the site visitors. We addressed theobserved major strengths and weaknesses and identified areas for potential follow-upquestions. We used a simplified form of KJ, or affinity diagram, analysis and voted toprioritize our observations. A similar analysis, based on the collective conclusion fromthe five site visits, revealed several interesting dichotomies.

For example, the greatest observed strength was sponsorship by a single seniorexecutive, usually the entity leader for the unit visited. On the other hand, it wasoften unclear as to whether that sponsor was simply encouraging or really driving thescorecards implementation. Also, to outsiders often not privy to confidentialinformation, the linkage between the scorecard measures and the business strategywere sometimes unclear, except in the case where a structured matrix approach was usedthat not only captured the causal relationship but also quantified its strength. At all sitesthe study team visited, the scorecard implementation was limited to a particular

S U M M A R Y


business unit or functiona good starting point, but a recognized obstacle to signif-icant strategic impact.

Does all of this sound familiar? Every major change initiative in the past 50 yearshas had the same basic agenda, though most organizations have fallen short ofcompleting theirs. However, the balanced scorecard provides the potential to unifiy theorganization around issues central to its survival. Those who are successful will winleadership roles in the 21st century and transfer all of the associated benefits to theirstakeholders.

KEY FINDINGS

The key findings of this study were derived from primary research performed viafive site visits to best-practice organizations and detailed survey questionnaires completedby 18 organizations. Based on the Measure What Matters benchmarking study scope,findings are supported with data gathered from the 18 study participants (partnersand sponsors). The findings, which are organized into three sections, address thefollowing dimensions of our learnings: designing the performance measurement system, implementing and operating the performance measurement system, and communicating and driving behaviors.

Section 1: Designing the Performance Measurement System

1. Best-practice organizations take a simple approach to ensure that the organiza-tion understands the link between performance measures and business strategy.

2. Even the most advanced users of performance measurement do not have a fully inte-grated scorecard in use throughout the organization.

3. Simple structures for the balanced scorecard will yield the most effective performancemeasurement systems.

Section 2: Implementing and Operating the Performance Measurement System

4. Executives must be actively involved in leading the implementation effort.5. The organization must dedicate top-notch resources to the implementation and

operation of the performance measurement system.6. Meaningful and effective performance measurement begins with strategic planning

and is linked to the periodic planning process.7. Simple, intuitive tools are most effective for managing and communicating per-

formance measurement information.

Section 3: Communicating and Driving Behaviors

8. Few organizations effectively use incentive compensation to manage individualperformance or contribution to scorecard goals.

9. Best-practice organizations enhance employee understanding of and support forperformance measurement through customized, ongoing communication.

S U M M A R Y

METHODOLOGY

Benchmarking is the process of identifying, understanding, and adapting out-standing practices from organizations anywhere in the world to help an organizationimprove its performance. Companies participating in benchmarking activities reportbreakthrough improvements due to direct and indirect improvements in cost control,quality, cycle time, and profits.

Recognized as first among a list of 10 leading benchmarking organizations modelsby the European Center for Total Quality Management in 1995, the APQC consor-tium methodology, developed in 1993, serves as one of the premier methods for successful benchmarking in the world.

The APQC project team conducted the Measure What Matters: AligningPerformance Measures with Business Strategy benchmarking study using its established benchmarking methodology, as described below.

Phase 1: Planning

A benchmarking team was formed in June 1999 consisting of the sub-ject matter expert, study adviser, and representatives from APQC. This teamdeveloped a project scope and the initial data collection tool to screenpotential best-practice companies.

The planning phase was concluded by conducting secondary researchto identify companies with notable processes in each of the key processareas. Companies identified via secondary research, subject matter expertsuggestion, and sponsor organization nomination were contacted andinvited to complete a screening survey.

The results of the contact and screening process were presented tostudy sponsors at the kickoff meeting on September 30, 1999. Based onthis information, sponsors chose the organizations they wanted to studymore in depth.

Phase 2: Collecting

The main objective of this phase was to focus on learning from best-practice part-ners by extracting rich, process-specific information concerning innovations in thestudy focus areas. In August 1999 five of the partner organizations were invited to hostsite visits during the study. Each accepted APQCs invitation and agreed to continuethe sharing process by hosting a four-hour site visit and completing the detailedquestionnaire. The other partners were asked to complete the detailed questionnaireas well. During the site visits, key personnel were asked questions from the site visitguide to share innovative and best-practice process information.

Phase 3: Analyzing and Reporting

In this phase, the APQC project team analyzed data collected from screeningsurveys, detailed questionnaires, and site visits. The team identified critical successfactors and key enablers of outstanding performance measurement initiatives.

S U M M A R Y


APQCs Benchmarking Model:The Four-Phase Methodology

PLAN COLLECT

ANALYZEADAPT


Analysis of participant data, along with expertise provided by Arthur Schneiderman,the subject matter expert, formed the foundation of this final report.

APQC published the results of the Measure What Matters study to help produceactionable change and solid decision making. Study key findings were presented to theparticipants during the Knowledge Transfer Session (KTS), a one-and-a-half-daymeeting in Houston on January 27 and 28, 2000.

Phase 4: Adapting

Adaptation and improvement from the best practices identified throughout aconsortium study occur after the sponsor company representatives take the key find-ings back to their organizations. APQC staff members are available to help studysponsors create action plans appropriate for their organizations based on the studyfindings.

SUBJECT MATTER EXPERTISE

Arthur Schneiderman, Subject Matter Expert, Independent Consultant

Art Schneiderman is an independent process management consultant. He workswith senior executives in client organizations to help them identify, map, characterize,control, improve, and otherwise manage their most critical value-creating processes.

From 1986 to 1993, Schneiderman was vice president of quality and productiv-ity improvement at Analog Devices Inc. (ADI). He was responsible for planning,facilitating, and supporting ADIs worldwide implementation of Total QualityManagement. He was a member of ADIs Executive Council, facilitated the QualitySteering Council (chaired by the CEO), and chaired the TQM ImplementationCouncil. Schneiderman was a senior examiner for the Malcolm Baldrige NationalQuality Award and served on the Conference Boards U.S. Quality Council II. He isa member of the editorial advisory board of the Journal of Strategic PerformanceMeasurement.

Before joining ADI, Schneiderman spent six years as a consultant with Bain &Company, an international consulting firm specializing in strategic planning andimplementation. He holds a bachelors and a masters degree in mechanicalengineering from the Massachusetts Institute of Technology (MIT) and mastersdegree in management from MITs Sloan School of Management.

Rick Martin, Study Adviser, Independent Consultant

Rick Martin is the president of Best Management Practices Consulting (BMP) inTruro, Nova Scotia, Canada. Martin has 16 years of experience as one of Canadasleading marketing specialists in the oil industry. For the past 10 years he has workedwithin business, government, and education to promote corporate performance bestpractices. From 1994 to 1997 he was on special assignment from the Canadiangovernment to develop and assist in the implementation of a national and AtlanticCanadian strategic plan.

S U M M A R Y

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Participant Highlights



Introduction

When assessing performance measurement practices across organizations, it isimportant to understand the differences in organizational structure, size, andindustry that might influence these practices. This section introduces our studyparticipants by comparing the sponsor and partner groups across several dimensions.

Figure 1 shows the variety of industries represented by our study participants.Five sponsoring companies (marked with an asterisk) chose not to answer the studysdetailed questionnaire because they do not have a performance measurement systemor their systems of performance measurement are still in the early stages of development.

Chemicals Solvay Polymers

Diversified foods Sara Lee CorporationTrebor Bassett Ltd.

Financial services and insurance LifeWay Christian Resources* USAALutheran Brotherhood Merrill Lynch Credit CorporationBlue Cross Blue Shield of MichiganCIGNA*

Manufacturing Case New Holland CaterpillarGeneral Motors The Boeing CompanyRicoh* 3M

Transportation United States Postal Service

Consumer products Eastman Kodak

Public service City of Charlotte, North Carolina

Telecommunication Nortel NetworksGTE

Utilities PP&L Resources Inc.Oklahoma Gas and Electric*New York Power Authority

Industry Sponsors Partners

FIGURE 1: Industries Represented by Participants

M E A S U R E W H A T M A T T E R SH I G H L I G H T S

* did not answer the detailed questionnaire


As indicated in Figure 2, most of the study participantshave 9,999 or fewer employees. Only one sponsor com-pany exceeded the 100,000-employees level.

Respondents were asked to answer the questionnairefrom one perspective for their company (i.e., corporate,divisional, and business unit). The most frequent responsewas from the perspective of the entire organization. The sec-ond-most-common response was from the business unitperspective (five responses). For these respondents, theaverage revenue was $5.17 billion, with a maximum andminimum of $22 billion and $890 million, respectively(Figure 3).

Additional details include: Two respondents reported costs of $6 million and $15

million that were not included in the calculation above. Three companies reported their number of FTEs to be

greater than 80, and these figures were not included inthis calculation.

SCORECARD CREATIONS

The balanced scorecard approach to performance mea-surement focuses on incorporating nonfinancial and finan-cial measures to create a more accurate picture of anorganizations performance. Throughout our site visits wefound a variety of reasons that led organizations to changefrom their former measurement systems. Some of the results were found at morethan one organization. For example, Nortel Networks Canadian Customer Service(CCS) and Caterpillar Wheel Loader and Excavator Division (WLED) both initi-ated the scorecard as a result of increased competition in the marketplace. BoeingCommercial Airplane Customer Support Organization (CACSO) needed to bettersupport its parent organizations with its products and services. At GTE, deregulationcreated a new business environment that prompted the need for new strategies. GTEchose the balanced scorecard as its tool to deploy new organizations strategies.In short, all of the best-practice used the balanced scorecard as a tool to boost theirefficiency by improving their end-to-end processes.

H I G H L I G H T S

Total Number of Employeesin the Organization

0

Number of Organizations

Partners (n=8)

Sponsors (n=8)

50,00099,999

0

10,00049,999

1,0009,999

Figure 2

0

100,000+

1009990

1 2 3 4 5 6 7 8

Total Annual Revenue of Organization Average number of FTEs Average annual spending for measurement on measurement

FIGURE 3: Revenue vs. Spending on Measurement

Minimum: $83.7 Million 1 $50,000

Maximum: $63 Billion 15 $500,000

Mean: $9.17 Billion 4 $300,000


CHANGES TO THE SCORECARD

Performance measurement has not been a one-timeeffort at any of the companies in this study. Both part-ners and sponsors have continued to develop and revisetheir performance measurement systems (Figure 4).They recognize the value of performance measurementand the benefits that a well-balanced, effective systemwill yield.

Sponsors indicated that they have made less-extensivechanges to their performance measurement systems inthe past two years than have partners. The most signif-icant changes for the partners and sponsors can be seenin Figure 5. The table represents the percentages of part-ners and sponsors that changed a particular dimensionof their performance measurement system.

Over the past two years, most partners and sponsorshave changed the individual measures and the goals set forthose measures.

RESULTS OF PERFORMANCE MEASUREMENT

According to the survey results, all of the organizationshave seen positive changes in their organizational per-formance due to their balanced scorecard approach. Allresponding partners and sponsors credit the scorecardwith focusing their organizations attention on the issuesthat were most critical to their success. Of the partnersresponding to the survey, 63 percent reported that thescorecard has helped them to improve productivity. Oneorganization even tracked its return on investment forthe balanced scorecard implementation and found that itssavings in the first year alone were enough to pay for all ofthe costs associated with setting up the system.

Degree of Change in MeasurementSystem in Past Two Years

0 20

Percentage

Partners (n=9)

Sponsors (n=9)

40 60 80 100

Completely

44%Significantly

Figure 4

Slightly

33%

56%45%

22%0%

Changes in thePerformance MeasurementSystem in Past Two Years

0 20

Percentage

Partners (n=9)

Sponsors (n=9)

40 60 80 100

Individual measures

33%56%

67%Goals set for each measure

Time frame for goals

Figure 5

Categories of measures

33%Ownership within the

organization

78%

67%89%

22%22%

11%

H I G H L I G H T S


Key Findings


21 Section One: Findings 1 and 2

37 Section Two: Findings 47

55 Section Three: Findings 8 and 9


Section One

Designing the PerformanceMeasurement System



M E A S U R E W H A T M A T T E R SK E Y F I N D I N G S

Balanced scorecard literature stresses the criticality of creating clear causal link-ages between scorecard metrics and the organizations strategic objectives. Thisexercise, however, is more easily described than done. If the objective is to provide acompelling story to all employees, then that story should be equally compelling to aknowledgeable outsider, since the vast majority of employees are usually nave abouttheir organizations value-creating process, strategy, and tactics.

Two factors confound the job of linking metrics to strategy: 1) the potential linksvary significantly in terms of their causal impact, and 2) it is difficult to uncover thereal drivers because they are often hidden by ever-increasing complexity. Many orga-nizations are beginning to recognize the need to understand their system of interact-ing internal processes as an intermediate step in identifying the true drivers ofstakeholder satisfaction. They quickly recognize that these drivers reside throughoutthe organization, not just within a business unit or a single organizational function, sothat real strategic impact requires corporatewide (both horizontal and vertical) score-card deployment.

To deal with these issues, leading organizations are developing formal quantitativeprocesses for identifying their internal and external strategic levers. They recognize thedynamic nature of this effort and the need for continuous refinement of their per-formance measurements and balanced scorecard.

The answer to one recurring issuethe optimum number of scorecard metricsstill remains elusive. Have too few, and some critical success factors will not receive therequired attention. Have too many, and the organizations management capacity isquickly overwhelmed. A rule of thumb, based on other management analogies,appears to be five to seven as the maximum number of scorecard metrics that anindividual scorecard owner can manage. Erring on the low side may be a prudentway to start.

The bottom line is that most successful organizations start small with theirperformance measurement initiatives. Their initial objectives are to learn the practice

Introduction


K E Y F I N D I N G S

of performance measurement and to develop organizationally relevant success stories.Employing the keep it simple principle wherever possible helps minimizeorganizational confusion and pushback. Best-practice organizations frequentlyexamine the scorecard implementation process and establish their own manual ofproblem areas, obstacles, and appropriate countermeasures. These organizations addcomplexity only when its needed to move to the next level of scorecard deployment.Successful scorecard implementers use initial successes as stories to sell the balancedscorecard approach to the rest of the organization.



What are the most important things for us to focus on? That single questioncan be anticipated in any scorecard implementation. In some organiza-tions, that question is readily verbalized. In others, it hides in the background, but itsstill there. Best-practice organizations answer that question up front, in a logical andconvincing fashion. The extent to which the resulting story makes sense determinesthe degree of organizational buy-in to the often-stretched goals associated with thescorecard.

That buy-in must occur not only for employees but also for the other stakehold-ers in the organization: customers, suppliers, communities, and stockholders. Thecommon bond among these sometimes conflicting constituencies is the achievementof the organizations strategic objectives. Best-practice organizations use a processthat will ensure the link between strategic objectives and the performance measurementsystem is both clear and compelling to all.

Currently, there is no single accepted model for developing this scorecard storyand for illustrating the link between measures and strategic objectives. Some organi-zations first identify their core business processes and then develop the appropriate met-rics for these processes. Others start with their existing set of performance measuresand map them against their strategic initiatives to eliminate unrelated metrics and toidentify gaps in their current metrics set. Often, index systems are developed for flag-ging under-performing metrics or as the basis for a variable compensation formula. Most organizations recognize that indices can mask the underlying metrics and goals.Therefore, when using indices to summarize performance, it is critical to maintainhighly visible links between the indices and their underlying metrics.

Best-practice organizations continually review and revise their scorecards withone eye on their rapidly changing environment and the other on ever-changing goalsand objectives. Maintaining this critical balance is often more art than science, yet itis essential to establish the credibility of the performance measurement system through-out the organization.

Finding 1:Best-practice organizations take a simple approach to ensure that the organizationunderstands the link between performancemeasures and business strategy.



The majority of our study participants maintain a highly visible and comprehensibleapproach for the development and deployment of their performance measurementsystems. Nortel Networks matrix-based approach for prioritizing metrics andidentifying gaps, detailed on page 27, is particularly noteworthy.

PRIORITIZING PROCESSES

As mentioned previously, an organization will look to the performance measuresimplementation team for answers to the question What are the most importantthings for us to focus on? Several study participants have identified systematic, log-ical, and convincing approaches for identifying a few vital performance measures.Many of these approaches rely on process-orientation and traditional quality improve-ment techniques.

3M:

In the early 1990s, 3M established Q90s, a total quality initiative that initiatedthe corporations uncompromising commitment to customer satisfaction. Theautonomous divisions at 3M identified strengths and areas for improvementaccording to the Malcolm Baldrige National Quality Award criteriaand thendeveloped and implemented plans that focused on meeting customer requirements.

As Q90s evolved throughout the company, so did 3M Dental Products Divisions(DPDs) commitment to numerous business processes that management establishedto meet goals. Division leaders recognized how the National Quality Award processmirrored their own, so they systematically assessed and improved using the Baldrigecriteria.

Boeing CACSO:

Boeing CACSO has embraced the Process Management ImprovementMethodology (PMIM) to increase its focus on processes within the organization.Each functional group within Boeing CACSO participated in a four-day off-sitemeeting, during which the group defined its processes, captured the critical elements,and mapped leverage points. This analysis enabled the group to understand therequirements and issues within each functional group. The PMIM and relatedprocess management tools will enable leaders to confer and make decisions aboutprocesses using a common vocabulary and approach.

Process management will enable Boeing to execute its strategy because it: captures customer requirements and expectations, focuses on the end-to-end processes, highlights leverage areas and process measures, and engages front-line employees.



Caterpillar WLED:

Caterpillar WLED uses a system called Business Process Simplification (BPSI)to prioritize its processes. The first step in the BPSI process is to isolate each processby determining the supplier and the customer. WLED determined that it had approx-imately 130 processes that were necessary to run its profit center. Using this tool,Caterpillar then narrowed the 130 processes to 13 that it felt were critical to profitand loss of the plant.

To determine the key measures and identify opportunities to improve each criti-cal process, Caterpillar used a tool called the Process Analysis Technique (PAT). EachPAT team consisted of two people; the first was the process owner, the second aninternal consultant. The consultant and the process owner were pulled from theircurrent jobs to work solely on the PAT. The PAT was actually simple; theknow-nothing consultant could ask questions about the process and provide a freshperspective, while the process owner understood the current process and often foundways to improve it. Those two people would interview other employees who used theprocess daily to evaluate each step in the process so they could reengineer it byremoving all nonvalue-adding activities.

IDENTIFYING MEASURES

When asked who is responsible for identifying measures on the scorecard, nearlyall responding organizations reported that their functional management was respon-sible (Figure 6, page 27). A higher percentage of partners than sponsors tended torely on cross-functional teams and quality groups.

Another facet of identifying measures is goal setting. Sponsors and partnersresponded very differently concerning the goal-setting process. Most partners(67 percent) tend to favor the catch-ball method of goal setting, which combines thetop-down and bottom-up approach. Most sponsor organizations (63 percent)primarily use the top-down approach.

GTE Human Resources:

To develop measures for the scorecard, GTEs work force development group for-mulated questions regarding its ability to achieve in the areas of five strategic thrusts,which are tied to GTEs business strategy. The five strategic thrusts are: 1. talent,2. leadership,3. customer service and support,4. organizational integration, and5. HR capability.

The group came up with 17 questions that frame the scorecard measures:1. Do we have the talent we need to be successful?2. Do we have the leadership bench strength we need to be successful?3. How is HR helping GTE position itself to meet the needs of its external customers?



4. Is HR creating an environment that encouragesintegration and shared vision?

5. Are we investing in our HR capabilities?6. Is GTE viewed as a great place to work?7. Is GTE creating an environment that engages people?8. Is HR viewed as an enabler to attracting and

retaining top talent at GTE?9. Is HR viewed as providing effective support systems

to employees?10. Are our staffing support systems fostering better

recruiting and selection?11. Are our other HR processes/transactions efficient

and effective?12. Are we using technology to improve HR efficiency?13. Are we managing the cost of turnover/churn?14. Are GTEs HR plans and programs competitive?15. Is our HR service delivery cost-effective?16. Are we managing financial risk?17. What is GTEs return on investment in people?

Finally, GTEs HR organization identified opera-tion/process measures and desired outcomes that wouldprovide the data needed to answer the 17 questions.These measures and desired outcomes are organized intofour perspectives (strategic, customer, operational, andfinancial) to form the GTE HR balanced scorecard.

Nortel Networks CCS:

Nortel Networks used a matrix to compare each of its top 33 metrics to eachstrategic objective. Each metric was given a score (-9 to +9) that indicates that met-rics correlation to each objective. Negative numbers imply an inverse relationship; thegreater the absolute value of the number, the stronger the relationship. Each metricwas given a total score by taking the sum of the correlation numbers for each strategicobjective. These scores were then used to determine the 16 most important metrics.

As a result, the balanced scorecard is aligned with Nortel Networks strategicobjectives, a list of metrics that strongly correlates with each strategic objective, and anoperational scorecard of those metrics not on the strategic scorecard that would helpNortel Networks CCS to make data-driven business decisions.

REVISIONS

Most of the partners and sponsors review their performance measurement systemsannually (Figure 7, page 28). Partner organizations also review their systems wheneverthere is a change in strategy, competitive action, or management. One organization

Party Responsible for IdentifyingMeasures on the Scorecard

0 20

PercentagePartners (n=9)

Sponsors (n=9)

40 60 80 100

Strategic planning group

67%33%

67%

11%33%

Business/functionalmanagement

Quality group

33%

44%Financial group

Figure 6

44%

Cross-functional team

89%78%

22%11%

Other



conducted a full review of its performance measurementsystem twice a year. A sponsor organization indicatedthat it reviews its measurement system whenever its orga-nizational strategy changes.

3M:

3M refines its performance measures system annuallyafter the 10-step corporate strategic planning process iscomplete. Related operational metrics are identified inthe fall during the budgeting process. In addition to theannual alignment, the system is refined any time a com-petitor takes a significant strategic action, as well as anytime there is a change in management structure at 3M.The process for reviewing and revising the performancemeasurement system is at the discretion of each of thedivisions. As long as they produce corporatewide mea-sures mandated by executives, the divisions can revisetheir measurements when necessary. On average, mea-surements are revised two or three times a year.

Boeing CACSO:

Boeing CACSOs leadership reviews the companystrategy annually in light of market performance andcustomer and competitor data. Organizational develop-

ment experts facilitate discussion of performance measures and any necessary revi-sion resulting from changes in strategy. Boeing CACSO also evaluates its performancemeasurement system on an ongoing basis. As new strategic directions emerge, the vicepresident of CACSO and/or a strategy development consultant lead discussions toidentify how to incorporate or reflect the new strategy in the measures.


Nortel Networks CCS has a documented process to review its performancemeasurement system. The process is designed to evaluate the effectiveness and use-fulness of each CCS strategic metric and to ensure the balanced scorecard is aligned withthe strategic plan. Six business operating managers (BOMs) are surveyed concerningthe effectiveness and usefulness of each metric.

To further determine its effectiveness, each metric is weighted on a scale fromone to four, one representing no value and four representing extremely valuable.Every participant rates the effectiveness of each metric to each of the six strategic goalsby asking the question How effectively does this measure represent the goal? Thisgives each metric a numerical value.

To determine the usefulness of each metric, respondents are asked to indicatehow often they use a particular measure to make decisions that affect the business.

Timing for Revisions to PerformanceMeasurement System

0 20

Percentage

Partners (n=9)

Sponsors (n=9)

40 60 80 100

Semi-annually

78%89%

11%

0%When there is a change inmanagement

33%0%In response to competitive

action

Figure 7

0%

Annually

67%11%

Whenever strategy changes

22%



They are given the choices of monthly, quarterly, and yearly. Each of these choices hasa numerical value associated with it, which is then summed with the measureseffectiveness score. If the measure is determined to be both useful and effective, themetric is kept on the scorecard. If it is deficient in either area, the measure is eitherdiscarded or amended.



There are two opposite scorecard deployment strategies. One starts at the topwith an overall corporate scorecard and deploys it down and across the organi-zation so that all business units, functions, and levels have linked scorecards. Anotherapproach takes a less aggressive approach. It starts within a business unit and/or afunction and, through the achievement of dramatic success and a cadre of champions,creates a demand for the scorecard approach throughout the entire organization. Thefirst model represents a push and the second a pull deployment strategy.

There is much debate over which of these strategies achieves the most successfulcorporatewide deployment. The answer depends on the organizations culture. Atone extreme, we have what has been termed uni-minded organizations, where allemployees line up behind the person at the top and simply follow orders (i.e., militaryand the prototypical Japanese organizations). At the other extreme lies the increasinglycommon Western, multi-minded organization, where a directive from the top is usu-ally met with a why? rather than the desired how? A push deployment strategy ismore likely to work in a uni-minded organization than a multi-minded one, where manyemployees need to be convinced that the proposed initiative is worth their effort.

Most of our best-practice partners have chosen to use a pull deployment strategyand are beginning to stimulate interest in performance measurement throughouttheir organizations. Almost all study participants use performance measurement at mostlevels of the organization. However, the measures may not be integrated into onecorporatewide balanced scorecard (Figure 8).

One of the keys to the balanced scorecard is to use the tool in an integrated fashionat all levels of the organization. Although none of the participants were able to roll upmeasures from the individual level all the way to the corporate level, they were allattempting to do so. The ability to use consistent measures throughout an organizationis the first step to linking the performance measurement system. At each organizationallevel, more partners than sponsors responded that they could aggregate their measures.

Finding 2:Even the most advanced users of performancemeasurement do not have a fully integratedscorecard in use throughout the organization.



Boeing CACSO:

The Boeing companywide value scorecard reflectstop-level measures and goals for the entire organization.The Flight Deck, CACSOs balanced scorecard, supportscompanywide goals and measures and reflects overallperformance measures for the Commercial AirplaneCustomer Support Organization. The leaders ofCACSOs subunits soon will identify leading measures thatfeed into and support the Flight Deck. Within one year,CACSO plans to develop scorecards for the entireCACSO organization, down to the work-group level.

Many Boeing operating units outside of CACSOhave recognized the value of the performance measure-ment system, especially in light of the introduction ofthe Boeing companywide value scorecard. Boeingrecognizes the need to develop similar performancemeasurement tools across the organization. As pocketsof performance measurement emerge at Boeing, theorganization will begin to identify common performancemeasurement frameworks, tools, and approaches for theentire organization.

Boeing CACSO reports performance levels for the keymeasures using the BSC performance matrix. The BSCperformance matrix displays current-month and three-month-running average performance levels relative to baseline for each key mea-sure. Color-coding (red, yellow, green, blue) enables a quick visual assessment ofperformance.

All measures within the CACSO flight deck/performance matrix system roll up,arithmetically and/or logically, to represent overall performance across CACSO. Inaddition, some CACSO measures, such as revenue and operating margins, roll up tothe Boeing-wide value scorecard. Lower-level measures, which include leading indi-cators, differ from top-level measures, which often represent outcomes. For exam-ple, Boeings top measures in on-time delivery, may reflect that the organizationdelivered 600-plus airplanes on time this year. Measures that support this goal atlower levels in the organization might include the on-time delivery of engineering designsto manufacturing unit.

Caterpillar WLED:

Caterpillar has a fully integrated measurement system. The corporate office iden-tifies the critical success factors (CSFs) that are broad strategies that shape the futureof Caterpillar. Bold goals are then developed by each of the profit centers in supportof those critical success factors. Within the profit center, each person and team has aset of SMART goals. SMART goals are Specific, Measurable, Action-oriented, Realistic,

How Organizational-LevelMetrics Are Rolled Up

0 20

Percentage

Partners (n=9)

Sponsors (n=9)

40 60 80 100

Employee rolled up todepartment 44%

Department rolled up tobusiness unit

33%67%

Business unit rolled up todivision

Figure 8

11%

67%56%Division rolled up to

corporate

44%89%



and Time-and-resource-constrained objectives that are designed to support the boldgoals and CSFs.

There are several links among the different types of goals. Each year WLEDdetermines its short-term objectives that roll into its business plan and its incentivecompensation plan (ICP). The ICP links a portion of employee pay to the performanceof WLED as a whole. Individual and team SMART goals are assigned based on thebusiness plan. The bold goals are the link between the SMART goals, the short-termobjectives, and the critical success factors.


Nortel Networks Canadian Customer Service performance measurement systemincludes a strategic balanced scorecard and an operational scorecard. The CCSstrategic balanced scorecard is used only by the CCS organization but includes data fromacross the Nortel Networks organization. Nortel Networks is planning to expandthe use of the scorecard to other customer service divisions worldwide.

Additionally, within the CCS there are operational scorecards maintained byseveral departments. These scorecards contain measures that reflect the day-to-dayoperations of the unit but are not strategic in nature, nor do they represent a balancedset of measures. Each metric has a measurable goal associated with it.The operational scorecards and the strategic scorecards have many links. NortelNetworks plans to create a balanced set of measures for each of the operationalscorecards within CCS.


M E A S U R E W H A T M A T T E R S K E Y F I N D I N G S

To best convey their performance through performance measures, successful orga-nizations organize their metrics into logical groupings. The most popular setof scorecard perspectives, for example, flows from financial to customer to internal tolearning and growth. In addition, many organizations use a visual analogy or logo, suchas an aircrafts flight deck or instrument panel, to communicate performance. Othersorganize metrics to uniquely reflect their individual business.

Most companies recognize that all metrics are not created equal. In other words,some scorecard metrics and their underlying processes will have a greater strategicimpact than others. This reality can be captured through the use of weighting factors:The larger the numerical factor, the greater that metrics impact on achievement of thestrategic objectives. But weighting factors are difficult to determine and greatlycomplicate communication of the scorecards rationale. These issues have promptedseveral study participants to delay the use of weighting factors until later in theirscorecard deployment.

In structuring the performance measurement system and in depicting results,study participants have found that scorecard users most appreciate simplicity. Mostsponsors and partners chose the five categories in Figure 9 (page 34) as the primary typesof measures in their performance measurement system. These categories conform tothe Sears model, which links employee satisfaction to customer satisfaction to finan-cial success. Internal business processes are often measured so companies can improvetheir products, processes, or services.

One of the keys to the balanced scorecard is to only focus on the measurements thatdrive your current business. Subject matter expert Art Schneiderman contests that man-aging performance measurement is analogous to juggling. Figure 10 (page 34) chartsthe number of catches per ball compared with the number of balls being juggled. Aswith juggling, the more things you try to concentrate on, the less attention (catches)you can give to each one.

Schneiderman recommends that individuals focus their efforts on up to sevenkey measures. Sponsor and partner organizations track nearly the same number of

Finding 3:Simple structures for the balanced

scorecard will yield the most effectiveperformance measurement systems.



measures at the corporate, business unit, and depart-mental levels (Figure 11). Partner organizations track onlyfour to six measures for work teams and employees,while sponsors track nine or 10.

Seventy-eight percent of study participants favor anon-weighted system for performance measurement.These systems are less complex and easier for employeesto understand and use.

Boeing CACSO:

CACSOs leaders, and specifically the vice presidentand general manager, envision a simplified version of thetextbook balanced scorecard method. CACSOs flight deckincludes three perspectives (modeled after Sears) link-ing employee satisfaction to customer satisfaction tofinancial performance. The customer perspective atCACSO includes traditional customer satisfaction-focused measures as well as internal process measures.

CACSOs flight deck includes a performance indexfor each of the three perspectives: financial, customer,and people. Each of these indices is weighted as 33.3percent of the total scorecard. The indices are compos-ite scores, representing about 15 top-level measures forCACSO.

Categories That Best Describethe Primary Types of Measureson Organizational Scorecards

0 20

Percentage

Partners (n=9)

Sponsors (n=9)

40 60 80 100

Quality

100%88%

78%

Financial

56%Internal businessprocesses

Figure 9

67%

Customer satisfaction

Employee satisfaction

100%100%

78%

78%78%

FIGURE 10: Juggling Records

Catc

hes

per b

all

Number of balls

30

40

50

60

70

80

90

100

20

10

0

0 2 3 4 1210 1198765

Source: Arthur Schneiderman



A critical success factor for CACSO was the devel-opment of tools and methods to populate and displaythe balanced scorecard. The flight deck, the BSC per-formance matrix, the BSC measure definition template,and other tools were created using simple spreadsheets.The accessibility and portability of these simple frame-works ensure that any group can access and use the toolsof performance measurement.

Caterpillar WLED:

Caterpillar WLED does not weight its goals unevenlyon paper. Caterpillar emphasizes some of the bold goalsover others by using the incentive compensation systemas well as having more SMART goals tied to particular boldgoals. By tying the measures that Caterpillar considersmore important to the compensation system, the com-pany believes those measures will be more important toemployees. Additionally, when supervisors createSMART goals for employees during the performancedevelopment program (PDP) process, they will createmore SMART goals for employees that are aligned witha particular bold goal. By increasing the number of thesegoals, supervisors direct the employees efforts to thegoals management considers most important.


Nortel Networks CCS currently has 16 measures on the strategic scorecard equallyweighted. The measures reflect CCS strategy and represent five focus areas: employeeperformance, internal processes, customers, market share, and finance. All of themeasures on the scorecard support their strategic objectives, and all of those areconsidered equal. The organization can easily weight its measures differently using thePB Views commercial balanced scorecard software.

Average Number and Type ofMeasures Tracked on Scorecards

0 3

Number of Measures

Partners (n=9)

Sponsors (n=9)

6 9 12

Business unit

811

11

Department

6Project orwork teams

Figure 11

10

Division

Employees

10

9

10

94

10

10Corporate


Section Two

Implementing and Operating the Performance Measurement System




According to the famous architect Ludwig Mies van der Rohe, God is in thedetails. To Admiral Hyman Rickover, the father of the U.S. nuclear navy, itwas The devil is in the details. Either way, getting the details right is the only wayto win at implementing the balanced scorecard. Recognizing the magnitude of the orga-nizational change associated with successful scorecard implementation quickly drawsus to the critical role top management plays. Executive lip service to performancemeasurement is insufficient. Remember the popular quip about the roles of thechicken and the pig in creating bacon and eggs: The chicken was involved, but the pigwas committed.

Although this distinction is extreme, top managements real and visiblecommitment to the creation and management of the balanced scorecard process is aprimary requisite for effective and timely implementation. Delegation of the leadershipresponsibilities of this job are impossible. Top managements ultimate personalresponsibility as captains of the ship and behavioral role models to the organizationwill reinforce the importance of the scorecard and its priority over other competingactivities.

However, top managers cannot and should not do the job by themselves. Eachscorecard metric must be skillfully, perhaps even artfully, created and enthusiasticallyowned by the person or team ultimately responsible for the achievement of the goal.A dedicated support group, well-versed in both performance measurement andfacilitation tools and techniques, must play a critical role. The combination of top-downcommitment and direction and qualified resources enables and motivates those whowill ultimately achieve the goals to provide the bottom-up knowledge needed for thecreation of realistic scorecards and their associated goals.

These experts/facilitators often can be found within the existing organizationalstructure. Strategic planning groups can be a natural match for the tasks associated withscorecard implementation. Representatives from finance and human resources can bringthe skills required to address such issues as metrics validation and employee motivation.

Introduction



Representatives from operations can ensure that metrics definitions are meaningful andrelated to real business objectives. Together, these experts constitute a core team to sup-port top managements initiative.

Fortunately, many new information technology tools are available to aid theperformance measurement implementation effort. With the increasing use ofcorporatewide access to data via intranets and other tools, the tasks of data collectionand dissemination can be effectively decentralized. Specialized software programscan deploy the balanced scorecard throughout the organization and permit the creationof customized reports for their timely management. Reports and displays using graph-ics and color-coding help managers quickly focus on areas requiring their attention.Some systems even allow statistical analysis of performance results, enabling the userto separate significant results from ever-present noise. But many note that manual pre-automation planning efforts have significant payoff, given the substantial cost associatedwith these powerful but often inflexible solutions.



The number of action items generated by a few top-level initiatives escalates atthe level of process execution. This initiative proliferation, compounded by thedemands of daily tasks, generally means that we have more potential tasks than avail-able time. These tasks are prioritized based on perceived importance, so top man-agement should rightfully drive this perception. Without a focused effort, we willlikely complete the task in form, not substance, and fail to generate the desired results.

Executives in best-practice organizations recognize this critical need and con-stantly reinforce their message through their personal involvement in scorecard creation,deployment, and management. Their approach is process-oriented and hands-on,often as a result of their past involvement in quality or process improvement efforts.They practice what they preach at every opportunity and become role models of thebehavior they are trying to stimulate.

As role models, they visibly use the scorecard to organize their own meetings,where they hold themselves, as well as each metrics owner, accountable for thecommitted results. These leaders elevate the importance of nonfinancial measuresby demanding data integrity. They require the use of scorecard results in everyemployees annual performance review and annual plan. In the front-end planningprocess, leaders require top management to approve all goals and ensure that thescorecard goals are matched to the available resources. This ensures that goal achieve-ment is a matter of thoughtful execution rather than unsustainable heroics. Bytightly integrating performance measurement into all appropriate legacy managementsystems, successful organizations link this new approach to the organizations traditionalstructure.

Over time, as performance measurement integrates into the organizations culture,the role of the executive leader often shifts from driving the scorecard implementationto nurturing its refinement. Several study participants struggled with the nature of theexecutive involvement. Although all scorecard initiatives had a top-managementsponsor and at least one enthusiastic middle-management proponent, the robustness

Finding 4:Executives must be actively involvedin leading the implementation effort.



of the effort remained unclear. Would the initiative survive the departure of one of thesekey individuals?

Boeing CACSO:

The vice president and general manager of the Commercial Airplane CustomerSupport Organization champions the flight deck, CACSOs balanced scorecard.Because he has a process management/quality background, he is accustomed toapproaching the business from a process perspective. He encourages CACSOs lead-ers to follow this approach as well. His leadership team consists of all of CACSOs func-tional and support group leaders. This leadership team drives the development andimprovement of the performance measurement system by communicating to theorganization about measures and results, by modeling the use of the measures, and byreinforcing the importance of performance measurement. The vice president andgeneral manager launched the flight deck at an all-leaders meeting and continue to rein-force the message of performance measurement through open forums with all levelsof employees.


Senior executive support of the performance measurement initiative was key to thesuccessful rollout of GTEs scorecard. The executive vice president of HR anddepartmental vice presidents played a major role in positioning the performancemeasurement initiative as a learning experience and a constructive, positive process ofimprovement.

The executive vice president of HR served as senior executive sponsor of the HRbalanced scorecard implementation initiative. He actively influenced others to supportthe initiative and then held them accountable for performance. He effectively con-veyed that the intent of the performance measurement initiative is to develop highlyeffective processes in HR, rather than to identify poor performers. The executivevice president of HR also modeled a commitment to deliver the best possible ser-vice to GTE employees, the customers of HR.


The vice president of Nortel Networks Canadian Customer Service organizationinitiated the balanced scorecard approach. He envisioned a centralized businessperformance measurement team, headed by a hands-on manager. With his enthusiasmand sponsorship, the balanced scorecard and the CCS approach to implementingthis tool may be used in all of Nortel Networks customer service divisions in North America.



Amanager would never select a random group of available personnel to design anew financial accounting system or to participate in any other strategic initiative.Similarly, successful scorecard implementers must create a core team of carefullyselected individuals to work hand-in-hand with the executive leadership.

The members of the core team should bring with them individual skills in areas suchas strategic planning, process management, human resources, and informationtechnology. The most important characteristic is the ability to enroll line managers inthe scorecard process and to constantly fuel enthusiasm through the difficult days ofinitial implementation. This effort requires a significant time commitment from thecore team members. This long-term commitment means that other provisions mustbe made for the work they normally would be doing. Effective performancemeasurement development cannot be expected as an added task to an already full-time position. Over time, the role of core team members changes fromdesigner/promoter to quality assurance/trainer. Usually, appropriate team member-ship changes with this role evolution.

Nearly all of the study partners made significant investments of people and moneyin their scorecard implementations. The average resource-retraction level was fourfull-time equivalents, with the expectation that the pilot implementations would taketwo to three years.

One of the keys to a successful scorecard is empowerment. The more people ableto use the information within an organization, the more effective the scorecard will be.The ability to use this tool to make business decisions will help to create buy-in fromemployees at all levels and help validate the scorecard as an effective business tool.As shown in Figure 12 (page 43) partners and sponsors report overwhelmingly thatexecutives use the balanced scorecard. Seventy-eight percent of sponsors and partnersreport that directors and managers use the balanced scorecard, while fewer than halfof professionals use the balanced scorecard. Forty-four percent of partners employeesare empowered to use the scorecard, while only 11 percent of sponsors employeesuse it.

Finding 5:The organization must dedicate top-notchresources to the implementation andoperation of the performancemeasurement system.



Educating employees about how to use performancemeasurements is critical to empower them to make deci-sions based on the scorecard. Among those organiza-tions responding to a related question on the datacollection tool, the most popular method of trainingemployees was an internal training class, followed bydirect coaching from managers (Figure 13).

Many of the organizations responding to the surveyexperienced challenges in defining measures, capturingdata, and addressing employees anxiety about account-ability (Figure 14, page 44). These challenges provide agood framework to identify the skills required on theimplementation team. People with skills in consensusbuilding can help facilitate discussions when creating acommon set of definitions for the organization. Peoplewith technical skills in data capture can design a systemto track those measures that are critical to the business.Perhaps the most vital person on an implementationteam is the one who communicates the importance andpower of the balanced scorecard and eases anxiety aboutmeasurement accountability.

Boeing CACSO:

Significant personnel resources are required toimplement Boeing CACSOs performance measurementsystem. The vice president and general managers lead-ership team chartered three types of balanced scorecardteams to support deployment of performance measure-ment. Clearly defining the roles and responsibilities ofthe team and creating ownership among team memberswas key to the implementation effort.

A development and deployment (D&D) team, con-sisting of appointees from middle and lower levels in theorganization, formed the core of experts who furtherrefined the system and continue to provide first-linedata from within the operating or business units. TheD&D team members are leaders within their organiza-tions. They represent all operational and supportprocesses within the organization.

Three balanced scorecard indicator champion teams(finance, customer, and people) ensure that measuresfrom each of the scorecard perspectives are integrated

Parties Who Interpret Dataand Use Them for Decision Making

0 20

Percentage

Partners (n=9)

Sponsors (n=9)

40 60 80 100

Directors

89%89%

78%

Managers

44%Professionals

Figure 12

78%

Executives

Employees

44%

11%44%

78%78%

Has a Formal TrainingCourse to Teach Employeesto Gather and Interpret Data

0 20

Percentage

Partners (n=9)

Sponsors (n=9)

40 60 80 100

Figure 13

44%22%



and aligned throughout the customer supportorganization.

Finally, the balanced scorecard process teams repre-sent all four operational processes and five supportprocesses. These team members work within theirprocesses to provide ongoing expertise, data collection,and analysis support to the D&D team. The strategygroup continues to support the implementation ofprocess management and performance measurement byproviding leadership and the D&D team with tools,training, and coaching. The strategy group aims toprovide tools and support in anticipation of needs sothat implementation proceeds as smoothly and quicklyas possible.

The process teams collect and analyze performancedata, set targets, and combine measures to report at ahigher level. The BSC indicator teams coordinate datacollection and display work to ensure consistency ofmeasures deployment. The D&D team ensures alignmentof measures to strategy and monitors and guides theprocess and indicator teams. The strategy group con-tinues to play a key role in enabling the operation of theperformance measurement system by providing tools,

facilitating meetings, and driving progress. By meeting with leadership as well aswith the D&D team, the strategy group can identify disconnects and coach theprocess from both ends. Now that the top-level implementation at CACSO is wellunder way, the strategy group implements performance measurement tools at lowerlevels in the organization. The strategy group also acts as a consultant to the D&D andprocess teams.

Caterpillar WLED:

WLEDs product managers were ultimatly responsible for determining the mea-sures that were used to run their business. The company enlisted the help of externalconsultants as well as Caterpillars business resources group, which aided the productmanager in determining measuresan evolutionary processand reporting andanalyzing them. The business resources group is a shared service organization that isin charge of the collection and analysis of some performance measurement data thatit reports to the department heads.


GTE HRs newly formed planning, measurement, and analysis team includes a direc-tor plus three employees who have been dedicated to the team full time since thebeginning of the HR balanced scorecard initiative. The HR measurement core team

Biggest Challenges Faced inInitiating the Performance

Measurement System

0 20

Percentage

Partners (n=9)

Sponsors (n=9)

40 60 80 100

Anxiety about measurementaccountability

Capturing data

Figure 14

Defining measures78%

56%

44%33%

44%33%



includes eight functional subject matter experts representing the various functionswithin HR and the five GTE strategic business units. These core team memberswere identified the critical measures and communicated them back to their businessunits. During the development of the scorecard, each team member investedapproximately 400 hours in the effort. In addition, GTE HR enlisted the aid ofconsultants from Hewitt Associates for a year-long development and implementationinitiative. These consultants are not actively engaged in the ongoing efforts.

Each core team member continues to devote about one week every quarter tosustaining the balanced scorecard system. These core team members coordinate thecollection, validation, and submission of performance measurement data for theirbusiness units, in addition to performing their full-time roles within the businessunits. An extended team in the HR technology and data group supports theperformance measurement effort.


Two groups are involved in the process of aligning measures with business strategy:the strategic planning group and the business performance measurement (BPM)team. The strategic planning group is responsible for organizing the yearly planningsessions with the senior managers, incorporating the strategic review into quarterlybusiness performance reviews, and collaborating with the business performance teamto ensure alignment between the balanced scorecard and the strategic objectives ofthe CCS.

The BPM team was responsible for the creation and rollout of a balancedscorecard to the CCS, including the gathering, trending, and reporting of allperformance data. It also established a centralized reporting function. The BPMteam is responsible for the ongoing collection and analysis of the performancemeasurement data.

The CCS BPM team relies on contacts within other business units to supportthe performance measures system. Each metric has a data provider and a regionaldata owner. Regional directors are ultimately responsible for the data submitted by theirparticular region.



Where does the scorecard process fit in the traditional organizational structure?Many organizations view it as a natural extension of the strategic planningprocess and necessary vehicle for communicating their strategies and making them moretangible. Others link it more closely to their quality improvement efforts. Stillothers view it as an extension of their financial function. Wherever its home base,most organizations prefer to position performance measurement as an extension ofcurrent practice rather than as an entirely new function.

No matter its location in the existing organizational structure, the fact thatperformance measurement picks up where strategic planning ends is formally rec-ognized in best-practice organizations. During strategic planning, the organiza-tion identifies the strategies and initiatives it will focus on in the future. This exerciseleads to the development of performance measures that will gauge the organizationssuccess related to these strategies. As depicted in Figure 15 (page 47), the developmentof the performance measures involves strategic planning professionals as well asquality, financial, and business unit representatives.

Several study participants link their balanced scorecard implementation to theirstrategic planning organization and/or process. All responding participants indicatedthat performance measures are identified during the strategic planning process. Someparticipants reported additional processes, as indicated in Figure 16 (page 47).

3M:

The 3M strategic planning process aligns and drives virtually every companyaction. This process: pulls together vast amounts of data and information for analysis, determines priorities, defines approaches, assigns responsibilities, allocates resources, and aligns activities with each divisions vision.

Finding 6:Meaningful and effective performancemeasurement begins with strategicplanning and is linked to the periodicplanning process.



Each divisions steering committee is responsible foradministering this process and ensuring that each processand measurement is aligned with corporate strategy.

The strategic plan includes high-level plans for 10years, with detailed information covering the first fiveyears. Each year, 3Ms dental products division (DPD)develops specific strategies, goals, and business plansduring its annual strategic planning process. Once thesegoals are established, the company puts its businessprocess management matrix (BPMM) to work byestablishing teams and projects to accomplish objectivesand identifying the measurement needs. Each projectteam (for new product development or products/processes) is commissioned for the year to achieve acertain objective. BPMMs are developed to indicate theperformance of these teams and projects. This effortmay include additions and revisions to the existingmeasures. DPD frequently reevaluates the matrices toensure that the measures are driving the right behaviors.

Boeing CACSO:

Boeing CACSOs leadership began the process toidentify performance measures by examining Boeingsvision, strategy, and strategic objectives. The groupdefined measures that would reveal how effectively theCACSO organization is achieving its strategy andsupporting Boeings strategic objectives. The groupused scorecard trees to identify real drivers ofperformance and to visually display the link betweenobjectives and measures. For each of the three score-card perspectives (employee satisfaction, customersatisfaction, and financial performance), the teamdefined each measure, its purpose, and its operationaldefinition.

CACSOs strategy group continues to support theimplementation of process management and perfor-mance measurement by providing leadership and thedevelopment and deployment teams with tools, train-ing, and coaching. The strategy group aims to providetools and support in anticipation of the need so thatimplementation will proceed as smoothly and quicklyas possible.

Parties Responsible for IdentifyingMeasures Used on the Scorecard

0 20

PercentagePartners (n=9)

Sponsors (n=9)

40 60 80 100

Strategic planning group

33%11%

Business/functionalmanagement

Quality group

44%33%

Financial group

Figure 15

Cross-functional team67%

33%

67%44%

89%78%

Process Used to IdentifyMeasures on the Scorecard

0 20

Percentage

Partners (n=9)

Sponsors (n=9)

40 60 80 100

Measures are identifiedduring the strategic

planning process.

Measures areidentified during the

budgeting process.

Figure 16

Measures are identifiedwith input from an industry

group or other outsidercritical to the business.

22%78%

100%100%

56%56%




As described in Finding 1, to focus the human resources organization on theachievement of its people imperatives, GTE developed a new human resourcesstrategy. GTE HR developed 17 questions related to its ability to support thisbusiness strategy. With the aid of consultants from Hewitt Associates, GTE identifiedthe data required to answer these questions, which became the measures that make upGTE HRs balanced scorecard. As GTEs business strategies change, the companywill require different data to gauge its ability to meet the strategies. The GTE HRbalanced scorecard is designed to be flexible, changing when business strategieschange.


Performance measurement at Nortel Networks historically has been linked withthe strategic planning process. To develop the scorecard, Nortel Networks CCSfocused on: the 19992000 strategic plan, its existing metrics, and the five focus areas(employee performance and satisfaction, internal processes, customers, market share,and finance).


M E A S U R E W H A T M A T T E R S K E Y F I N D I N G S

The balanced scorecard and its associated set of performance measures can cre-ate a major logistical challenge. Data, often generated at remote locations, needto be input periodically into the performance measurement system. Narrative expla-nations of significant performance gaps need to be disseminated. Results need to beaccessible in a timely manner, which usually means within days of the reportingperiods close. Reports have to be structured, perhaps using color-coding, to drawattention in a potential maze of data to those few areas requiring managementattention.

Most organizations initially manage performance measurement data and resultswith manual systems, often based on simple spreadsheets and graphics packages. Dataare centrally collected using fax or e-mail and published from a single location. Oncethe organizations have a clear understanding of their data needs, they can transitionto one of the many custom software packages designed for automating the scorecardlogistics. Other organizations start with these automated solutions and use theirhardwired framework as the template for their scorecard implementation (Figure 17,page 50).

Even among best-practice organizations, performance measurement solutions arenot completely automated. The critical element of simplicity is demonstrated instudy participants choices of tools used to manage performance measurement.Some best-practice partners use a commercial balanced scorecard software package(Panoramic Business Views or PB Views) to compile and distribute periodicperformance measurement reports. In each case, they used simple software programs(e.g., Excel spreadsheets) to collect and analyze the data. Many organizations antic-ipate further advances in automation as enterprisewide solutions (such as SAP andOracle) become available.

Most responding organizations that have selected a technology solution or softwarepackage did so after they implemented their performance measurement system (Figure 18, page 50). However, a technology solution is not necessary for the successful

Finding 7:Simple, intuitive tools are most effective

for managing and communicatingperformance measurement information.



implementation of the balanced scorecard. Many of thepartners and sponsors do not have a performancemeasurement software package to complement theirperformance measurement initiatives.

Best-practice organizations have developed simpletools for displaying and communicating performancemeasurement data. These tools are often paper-basedmatrices that display vital measures, goals for those mea-sures, metric owners, definitions, and other informationvital to the performance measurement system.

3M:

The dental products division steering committeeimplements performance measures. The steeringcommittee, with input from DPD employees, identifieswhich measures will be used to determine the perfor-mance of each product and functional group. A businessprocess management matrix is created each year, whichenables DPD to achieve performance measures that areleading indicators of business success. This matrix hasevolved over the years and changes based on what makessense to measure and drive the divisions actions.

All DPD employees have access to divisionalperformance measurement along with their teamsmeasurement results on the LAN. Employees developtheir own EC & DP, based in part on peer, 360-degreefeedback results, which are accumulated by the managerusing a corporate-standard software package.

Everyone within the DPD can access the BPPM ona shared directory on the file server. All employees havean interest in monitoring performance using this tool,because their day-to-day performance influences theirperformance measures.

Each division is responsible for designing andimplementing its own performance measurement system.Corporate auditors ensure common measures requiredby law, but divisions measure other activities that apply to their business. Consequently, there is little commonality for definition of operational measures ata corporatewide level. There is, however, a corporatequality group that supports consistency of measures,when applicable, and encourages the business units toshare learnings with each other.

Collection Methods for PerformanceMeasurement System Data

0 20

Percentage

Partners (n=9)

Sponsors (n=9)

40 60 80 100

Mix of automation andmanual effort

Figure 17

Manual effort only11%

22%

89%78%

Timing for Selection of aTechnology Solution

0 20

Percentage

Partners (n=9)

Sponsors (n=9)

40 60 80 100

Beforeperformance measurement

system implementation

Figure 18

N/A, do not have atechnology solution

56%38%

Measure What Matters

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