Step Two:Strategy and Execution—Using Balanced Scorecard Effectively

NOTE: We continue our conversation with Skip Kapur about turning a business into a high performance organization. Mr. Kapur's methodology uses six steps to transform a business to use his proven high performance model. Step two ties measurement to results.

—M. A. “Ryan” Yuhas, Process Effectiveness Consultant

“In step 2, the management team develops a clear scorecard that defines success.”

—Skip Kapur

RY: This time we're going to talk about “executing with excellence.” In our first article about the Six Steps to High Performance, you talked about the Balanced Scorecard approach. Tell our readers what it is.

SK: A Balanced Scorecard is essentially a report card. It is a way to monitor multiple dimensions of your organization's operations and results—instead of just concentrating on financial performance. You use the Balanced Scorecard process to take a snapshot of your performance within a regular cycle, such as once-a-month. Then you use that information to influence the behavior within—and results produced by—the organization.

RY: So what dimensions should an organization monitor?

SK: There are five dimensions:

• People
• Processes
• Customers
• Finance
• Innovation

You have to go through a process to determine what specifics you need to pay attention to in your own business. It is important that you pay attention to all of these dimensions and how they affect each other— otherwise, you may have a scorecard but it's not a Balanced Scorecard.

RY: What process would you use to determine the scoring categories within those five dimensions?

SK: I'd set aside one-and-a-half to three days for a Business Planning Session with the Management Team (see last month's article), and make sure that only the Management Team is in attendance. One member would act as facilitator—and this should never be the organization's leader. At this session, I'd work to develop consensus on fundamental principles:

The organization's purpose: Why does it exist? What is its competitive advantage?

The organization's business model: Do we sell time, products, or both? As an alternative, what products and services do we provide, and what is the pricing model for each.

The customers: Define who we serve. Segment them if appropriate.
Core processes: What is at the heart of why customers come to us, and not someone else?
Once I had laid the groundwork (using approximately 1/3 of the planned time for the session), I would determine the following:

The top seven (or so) goals that we would want to accomplish over the next year. We would specify the goal, describe the strategy we would use to attain the goal, and state what measurable result we seek to attain for the that goal.

RY: So what is the outcome of all that work?

SK: By the time we get through all of the steps above, we've essentially created the framework for our Balanced Scorecard. At this point, we would have between seven and 15 measures (I emphasize we seek to monitor results, not activities). There may be more measures than goals because there may be more than one measure for each goal.

RY: You can measure many things in a business. What makes this approach any more effective?

SK: In my experience, I've seen measurements misused more than I've seen them used properly. I cannot overstate the importance of defining the correct measurements by which you will judge business performance, make management decisions, and provide bonuses and other performance-based compensation.

RY: So you aren't just measuring performance, you are rewarding based on the measurements—based on results?

SK: Yes. If you use the right measurements, you direct the behavior, and achieve the results you desire. Use clear and correct measurements, tie them to compensation, and your organization will travel to success along the shortest possible path—a straight line.

RY: And when people see the results that they are being rewarded for, they'll probably do everything they can to ensure the results are good—like striving for customer satisfaction, more consistent uptime, etc.?

SK: Exactly. It becomes a feedback loop. When I measure my results, I will make decisions or work in ways to improve the results. When I see results improve, I know what it takes to make them better yet.

© 2002 Sunil “Skip” Kapur and M. A. “Ryan” Yuhas
InterDimension Strategies Inc.