Balanced Scorecard Balanced Scorecard EFQM Members Only

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2 Summary This Publication gives a comprehensive understanding of the Balanced Scorecard. The is a logical strategic framework organised across four key perspectives, which enables an organisation to articulate its strategy in a set of focused, strategic objectives and measures. It tells a story of the strategy in operational, actionable terms. In the history of Balanced Scorecard, it has been developed according to the practical implementation of organizations, for instance, the 11 steps proposed by Olve, Roy & Wetter in their book "Performance Drivers". Therefore, in this publication from another perspective, we mainly discussed 3 significant steps as for concerns. On the other hand, EFQM Excellence Model also provides a thorough measurement for an organisation s performance. The research information in this publication gives a comprehensive analysis comparing the Balanced Scorecard and the EFQM s Excellence Model. Meanwhile, it provides the successful good practices from EFQM role model organizations as well, sharing their experiences in implementing the, which gives a better understanding of how it works. In the end, we also discuss about the insights from role model organizations and the practical implementation in the public sector

3 Content 1. INTRODUCTION A CLOSER LOOK OF BSC UNDERSTANDING UNDERSTANDING STRATEGY AND THE ROLE OF THE BALANCED SCORECARD IN STRATEGY FORMULATION & DEPLOYMENT IMPROVEMENT DEVELOPING A BALANCED SCORECARD RESEARCH INFORMATION BALANCED SCORECARD VS.EFQM EXCELLENCE MODEL A CLOSER LOOK AT EACH OF THE MODELS AND HOW THEY WORK vs EFQM Excellence Model GOOD PRACTICES THE RELATIONSHIP BETWEEN THE MODEL AND THE BALANCED SCORECARD Solution and Recommendations from Oracle Analysis of the EFQM Excellence model and the THE GLOBAL FINANCIAL SERVICES, A CASE STUDY ON THE IMPLEMENTATION OF BALANCED SCORECARD The at GFS The implementation of at GFS INSIGHTS EUROCOM DEXIA-SOFAXIS HOSHIN Strategy deployment with coupled with Hoshin ZAHNARZTPRAXIS Developing our scorecard with all employees CUSTOMISING THE BALANCED SCORECARD (BSC) FOR THE PUBLIC SECTOR

4 Introduction A closer look of BSC Resource: Excellence One - 3 -

5 1. Introduction 1.1 A closer look of BSC A strategy simply describes how a management team thinks it will achieve its vision of success for some point in the future. A bridges the gap between vision and strategy, and implementation. The four perspectives of the The is a logical strategic framework organised across four key perspectives, which enables an organisation to articulate its strategy in a set of focused, strategic objectives and measures. The tells the story of the strategy in operational, actionable terms. Shareholder / Financial Perspective For most publicly quoted organisations, the shareholder perspective describes the financial objectives that need to be achieved to meet the expectations of the shareholder, be they in the form of market presence, economic returns, or asset utilisation. Crudely speaking, at the highest level, the shareholders" main concerns will fall into two broad categories, one of revenue generation, the other of productivity and cost effectiveness, together yielding a level of returns demanded by the shareholder. [Shareholder proxy is often the parent company rather than the capital markets at large.] This perspective of the expresses the requirements of the shareholder

6 Customer / External Perspective The customer perspective focuses on describing the key attributes of the product/service offering which represent value for the customer from the customer s point of view. This perspective expresses the needs of the customers and identifies those components of value within our service offering which both satisfy the customer s expectations and that the customer is willing to pay for at a price which generate the economic returns the company requires. Other external stakeholders who are often treated as customers can also find their place in this perspective such as city investment advisors, industry regulators, or suppliers. Internal Perspective The Internal perspective describes the processes and activities that if executed at the highest level of performance will drive success in meeting the Financial and Customer objectives. In developing the Internal perspective, we focus on identifying those elements of a company"s value chain that have the greatest or most significant impact on satisfying the customer and producing the financial returns the company aims for. Learning and Growth Perspective Once we ve understood and clearly expressed the critical drivers of value at the Financial, Customer and Internal Process levels, what is left to do is to identify those areas which require investment today to deliver the strategy as described by the objectives. These "Learning and Growth" or "Innovation" areas are often referred to as enablers. They are traditionally supporting activities within a business or activities typically not directly linked to the bottom line. They include those activities often managed by the H.R, Finance and I.T departments. Typical Learning and Growth objectives may focus on developing specific skills and competencies, or on providing the right I.T tools, or on having targeted customer information. Broadly speaking, Learning and Growth objectives fall into the categories of competencies and skills, knowledge and information, and culture. This perspective represents the foundations of the company, and its future capability. What enablers are invested in today will determine how and where we are successful tomorrow. Within the framework, such investments can be directly linked to the business strategy and the bottom line. This is how the tells the story of the strategy through a set of strategic objectives linked together through logical cause & effect relationships across four perspectives bringing together all of the stakeholders who have a claim on the company - shareholders, customers and partners, employees. Strategic Linkage Model The strategy in form can be represented using a "Strategic Linkage Diagram". This diagram describes the critical objectives of the strategy across the four perspectives, inter-linked in a way that highlights the "causality" of the underlying strategic objectives. It is often used as a communications tools which clearly and succinctly describes all of the key components of the strategy

7 The process does not stop here. Once objectives have been defined, the process of identifying appropriate measurement against each of the strategic objectives starts. measurement focuses both on identifying lead and lag indicators. Lead indicators act as early warning signals and assess whether the company is on the right track, whilst lag indicators track the company"s performance in achieving a particular result. It is the balance of lead and lag indicators within the that makes it a proactive strategic performance tool. The measurements like the objectives they reflect are specific to a specific company"s. A complete includes detailed descriptions of the strategic objectives; one or two measures that can be used to track progress toward achieving each objective, associated targets for the measures, and details of projects or actions that are required before an objective can be effectively tracked. A good programme would also outline a step by step implementation plan touching on all key aspects of implementation: communications and roll out to other organisational areas, links to incentives and rewards, alignment with the budgeting and planning processes, setting of systematic review and feedback mechanisms. Example of a complete template - 6 -

8 Understanding Understanding Strategy and the role of the in Strategy Formulation & Deployment Author: Geoff Carter Resource: Excellence One - 7 -

9 2. Understanding 2.1 Understanding Strategy and the role of the Balanced Scorecard in Strategy Formulation & Deployment Understanding Strategy All organisations have a purpose, a raison d etre. They exist to do something, be it the delivery of a product or a service. Many organisations summarise this reason for existing within what is often called a Mission statement. Having a raison d etre, a sense of purpose, is only the beginning; this has to be followed by a sense of where you wish to be in the future, your Vision. Depending upon your industry sector this future, in terms of time horizons, could be 6-12 months out, (typically the high tech sector) or 3 5 years, (typically pharmaceuticals sector). Some organisations believe that they do not need to formalise the way they develop their future direction. The pressures of day-to-day realities, trusting in serendipity, or having a degree of fatalism, are all reasons for not stepping back periodically and asking ourselves three basic questions: - Where are we now? Where do we want to be? How best to get there? However, those organisations that do respond to these three questions periodically are effectively undertaking a Strategy formulation, deployment and review process in a systematic and coherent manner. Food for thought! Less than 10% of strategies effectively formulated are effectively executed Fortune Magazine In the majority of failures - we estimate 70% - the real problem isn t bad strategy..it s bad execution Why CEO s Fail Fortune Magazine In 1998, Ernst & Young LLP published a report called Measures that Matter which included the outcomes of their research amongst City Analysts on what they saw as the most important non-financial factors that influenced them in relation to identifying the likelihood of a - 8 -

10 company s ability to deliver Shareholder Value. The following six attributes, in order of priority, were identified as the most important: - o Strategy Execution o Management Credibility o Quality of Strategy o Innovation (new products) o Attract talented people o Market Share An introduction to the Would you tell me, please, which way I ought to go from here? That depends a good deal on where you want to get to, said the Cat. I don t much care where, said Alice. Then it doesn t matter which way you go, said the Cat. Acknowledgements to Lewis Carroll - Alice s Adventures in Wonderland If the fictional character of Alice were around today, she might well be tempted to use the to help her get in touch with where it was she really wanted to get to and how she might do it! Kaplan & Norton first presented the concept in the January/February 1992 edition of the Harvard Business Review. The article emerged from research they had recently completed into performance measurement and management systems across a range of organisations. The article acknowledged that the traditional financial measures organisations were using, whilst necessary, were not sufficient. The strength of financial measures is that they give you a summary of performance to date in a number of key areas e.g. ROCE, ROI and Operating Income. Their weakness is that they do not help managers to identify how best to improve performance in the next period. Essentially: - Most financial indicators are backward looking; it is often equated to driving your car by looking through the rear view mirror, or, steering the ship by watching the wake

11 Financial performance tends to be measured over the short term and therefore encourages the use of quick fixes to make, for instance, the next quarter s results. Financial measures, on their own, do not convey to the staff in a motivational way the organisation s strategy and priorities. The concept addresses these shortfalls by giving organisations four different perspectives from which to choose measures. It complements the use of traditional financial indicators with measures of performance in Customers, Internal Processes and Learning & Growth dimensions. The four dimensions are usually presented visually in the following hierarchy with the arrows reflecting the top down and bottom up nature of the interactions. To satisfy our shareholders, what financial objectives must we accomplish? Financial Dimension Objectives Measures Targets Initiatives To achieve our financial objectives, what customer needs must we serve? Customer Dimension Objectives Measures Targets Initiatives To satisfy our customers and shareholders, in which internal business processes must we excel? Internal Dimension Objectives Measures Targets Initiatives To achieve our goals, how must our organisation learn and innovate? Learning & Growth Dimension Objectives Measures Targets Initiatives

12 Each Dimension consists of Objectives, Measures, Targets & Initiatives. The following is a list of hints tips and clues regarding the content in each of these boxes. They are also expanded upon in the following sections. o o o o The number of objectives in each Dimension should be less not more and the linkages between them should be clear and understood. The measures used should be a balance of leading and lagging. The targets set should be stretching, i.e. they should be achievable and therefore motivational, but at the same time demand a level of creativity and entrepreneurship on the part of staff to achieve them. The initiatives should be those that most positively influence the achievement of the specific objective(s) In summary, the approach starts by asking the following question: - If we succeed with our Vision and Strategy, how will we look different? a) To our shareholders and customers? b) In terms of our internal processes? c) In terms of our ability to innovate and grow? The is a mechanism for translating an organisation s Vision and Strategy into a cohesive set of objectives and related measures. The four Dimensions, or Perspectives as Kaplan & Norton call them, Financial, Customers, Internal Processes and Learning & Growth provide a balance between financial and non financial measures] The four Dimensions provide a balance of short term and long term objectives The approach demands clear identification of the key linkages between the desired outcomes and the Drivers (Enablers) that will deliver them. The completed of an organisation provides a powerful, visual communications vehicle for explaining to all stakeholders what the Strategic Direction of the organisation is. Returning to the Food for thought quotes at the start of this section. Remember that two of the three items that are uppermost in the minds of City Analysts when they assess the non-financial capabilities of an organisation are Strategy Execution and Quality of Strategy. The, used correctly has the potential to strongly influence a successful outcome in both these areas

13 Developing a There are a number of ways in which an organisation can develop its own, for instance, the 11 steps proposed by Olve, Roy & Wetter in their book Performance Drivers. For the purposes of this article, we will focus on the six-step process promoted by Kaplan & Norton. o o o o o o Step 1: Define the Strategic Direction Step 2: Identify the key themes that drive the strategy Step 3: Build the strategic linkages Step 4: Determine measures and targets Step 5: Select priority initiatives Step 6: Plan for implementation Health warning!! As with any other change initiative, the support of the senior management team is crucial and they will need to be engaged in the process. Typically, this is achieved by involving them at four stages in the process. 1) Launch meeting; where they become familiar with the BSC, its potential benefits, the project plan for implementation and individual roles and responsibilities 2) Workshop #1; where they debate and take ownership of the work done in steps 1 3 and confirm next steps 3) Workshop #2; where they agree on the Measures and Targets (Step 4) that will underpin the themes and objectives that drive the strategy. 4) Workshop #3; where they agree the final, the supporting initiatives, the deployment and communications plans (Steps 5 & 6). Although the involvement of senior management is crucial, a team of people from across the organisation will do much of the work under the guidance of an experienced Team Leader. Tasks they will become involved with include the following: - o o o o Gather and analyse relevant data Interview key personnel Create proposed scenarios for the future, the strategic direction, sample Strategy Maps, possible objectives and measures Document the process and the outcomes The time it takes to develop the will vary from case to case. Factors such as organisational size, availability of meaningful data, commitment and availability of senior management etc. will all influence the end to end time

14 scale. However, in general, one should look to complete the end to end process within a 3-4 month period. Step 1: Define the Strategic Direction When developing the Strategy of an organisation it is just as important to be clear on what not to do as what to do and the has proven to be a powerful tool for forcing the decision maker(s) to focus on what they see as the most important aspects of their business as they develop and deploy the organisation s strategy. The purpose of step 1 is to refine and validate the current Vision of the organisation. This refinement and validation will include items such as past performance of the organisation, industry trends, competitive benchmarking and the use of tools such as SWOT/PESTLE analysis. Step 2: Identify the Key Themes driving the Strategy This step is undertaken to identify the 3 5 major themes that the organisation must commit to if it is to be successful in accomplishing the strategic direction that has been confirmed and validated in step 1. For an example of what we mean by Key Themes, consider the work of Treacy & Wiersema in their book, The Discipline of Market Leaders. Their research identified three common strategic themes that emerged from the organisations they had investigated. Product Leadership (Innovation) Customer Intimacy Operational Excellence In any organisation s, the 3-5 Strategic Themes should be definable, discrete but mutually achievable and clearly linked and supportive of the overall strategic destination. Do you know what the Strategic Themes are for your organisation? Step 3: Build Linked Strategic Objectives for each Theme For each of the Strategic Themes that have been identified for an organisation a set of linked objectives needs to be developed By linked objectives we mean objectives that are spread across the four Dimensions and related to each other. Each objective should be inspirational in nature and help to tell the overall story of the strategy. It should be formulated to include a verb plus an adjective plus a noun. For instance Reduce the costs of transactions

15 Clearly the Strategic Themes mentioned above are not the only possibilities but imagine for a moment if your organisation had a Strategic Theme of Customer Intimacy. What would you expect to see in each of the Dimensions that linked this all together? One example could be as follows. Starting with the Financial Dimension, the objective is to increase profitability which could be achieved through the Customer Dimension objective Retain existing Customers - who are attracted to stay with us (and recommend us to their friends) because they value the personalised nature of the relationship - which the organisation can deliver on through its Internal Dimension - where we have a strategic objective Provide systems that deliver accurate, timely and relevant information on each Customer which can be accessed easily by the staff, who, within the Learning & Growth Dimension, are involved in the objective Provide training in Customer Relationship Management and Telephone Handling Skills for all front line staff. Step 4: Determine Measures & Targets Linking measurement to strategy is the cornerstone of a successful strategy deployment process. Many organisations use more measures than they can handle, the Balanced Scorecard approach requires managers to agree on only those measures that are most critical to the success of the organisation s strategy. Perhaps using only measures in total Having presented the outcomes of Steps 1 3 to the senior management team and gained their agreement to the Strategic Direction, Strategic Themes and Linked Objectives in Workshop 1, the next step is to develop measures and target for each of the linked objectives. Depending upon the business maturity of the organisation it will most certainly already have a number of financial measures in place but it may be weak in the quality and quantity of measures in the other Dimensions. Measures come in many forms; Ratios; Percentages; Indices; Ratings; Absolute Numbers; they all have their strengths and weaknesses. The overall package of measures chosen should meet the following criteria. A balance of leading (operational) and lagging (perception) measures Help to communicate the strategy Help to motivate the organisation

16 Drive the desired behaviours Be repeatable and reliable Accountability/ownership for the measure is clear As a guideline your Measures should comply with the following: - One Leading (Enabler) & Lagging (Perception) measure for each Strategic Objective The Leading (Enabler) measures will be more prevalent in the Internal and Learning & Growth Dimensions In total, no more than measures across the whole Balanced Scorecard. Health warning!! Measurement is invariably an emotive subject in organisations, instinctively many people do not like them and gaining acceptance is a crucial step in the overall process of a successful implementation. Measurement should be seen as a tool for communication, for identifying problems and addressing them as soon as possible and for learning. If measurement is used to apportion blame then people will very quickly find ways to work around the system. Having determined the measures that will be used to support the Strategic Direction, the next step is to identify the targets to be associated with the measures. The measure tells us how we intend to assess performance; it is the target that tells us how and where we have to improve to achieve the desired level of performance. When setting the target for the future it should be based on current performance levels, organisational aspirations, available resources and external data such as benchmarking the performance of your competitors and Best in Class organisations from other sectors. It is useful to bear I mind the following guidelines when selecting target(s) There should be just one target for each measure to avoid confusion Targets should be quantifiable, i.e. a time/cost/quality aspect There should be a clear, logical linkage between the target, the measure, the objective, the theme and the overall strategy Some of the targets should be Stretch, i.e. they help keep the organisation focussed on the mid long term as well as the short term and encourage innovation to achieve the desired level of performance. Targets should be mutually supportive. For instance, it is pointless setting targets for different strategic objectives across the four Dimensions within the same Strategic Theme if overall they force conflicting actions

17 Step 5: Select Priority Initiatives Most organisations will have a number of improvement initiatives running at any one time. Introducing the gives organisations the opportunity to perform a sanity check on these initiatives, making sure that they support the agreed Strategic Direction and confirming exactly which strategic theme(s) they are related to. An analysis of the various initiatives is the final link in the process for mapping out the road by which the organisation will travel towards its desired future. The first step is to identify the sum total of all the initiatives that the organisation is currently involved in. The second step is to map these initiatives to the Strategic Objectives, where applicable. Where they do not map then a potential saving in resources is immediately apparent. Step 3 is prioritisation. To facilitate this part of the process as smoothly as possible, it is very important to have an agreed filter through which each initiative must pass. If all initiatives end up passing through then the filter is not good enough. The objective here is to focus on what is THE most important. You should be looking to do less not more in this area! Step 4 requires the organisation to step back and see if there are any areas in which there are no initiatives supporting a strategic objective! Health warning!! It is imperative at this stage that the organisation employs fair process i.e. the criteria for selection is understood and the process is clear and accepted by all. Without this an organisation runs the risk of initiatives that survive the process being categorised as we are only doing this because Manager X made a big fuss and (s)he was the one who introduced it in the first place. Step 6: Plan for Implementation At this stage the Strategic Direction and linked Strategic Objectives are finalised, most, if not all measures have been agreed as have the Strategic Initiatives the organisation will start/continue with. There is no single, all-encompassing and definitive list that is applicable to all organisations for producing the implementation plan. Situational needs will strongly influence both the various steps to be undertaken and the order in which they are processed. However, a generic list could include the following activities Develop a communications plan for cascade of the outcomes from the BSC development process and the next steps to all employees

18 Agree to what level the BSC is going to be deployed Agree the level to which team and personal objectives linked to the BSC will be cascaded Agree what the recognition and reward scheme to encourage the commitment to the BSC process will be. Ensure budget is available for the Strategic Initiatives Agree and create the BSC reporting system and periodicity of reporting Last, but not least, agree in advance when the management team will review the process. Tools & Techniques As an organisation works through each of the six steps to develop its Scorecard there are a number of tools & techniques that it may find useful. This can include the following, (See Excellence One- Tool Book) Long Term Planning Checklist Fact Finding Mission SWOT analysis Organisation Scorecard Tree Diagram Catch-Ball Deployment & Implementation Review Checklist Measurement System Checklist Metric Checklist Surveys Focus Groups Attendance at industry specific seminars Scenario thinking Benchmarking PESTLE analysis (Political, Economic, Society, Technological, Legal, Environmental) Affinity Diagrams Cause & Effect Brainstorming Prioritisation and Rating Charts Project Management Summary If an organisation wishes to progress towards its future in a planned, focussed and coherent fashion it needs to have: - A Strategic Plan describing how it intends to achieve this

19 The Strategic Direction needs to be communicated to everyone in the organisation so they can understand their role and responsibilities and how they make a contribution. To encourage the behaviours that will support the commitment to, and delivery of, the Strategic Direction, the organisation s Performance Management and Recognition & Reward systems should be aligned A periodic Strategy Formulation review process in place The is a tool that can help an organisation achieve a soundly based, systematic approach to Strategy Formulation and Deployment. It augments the traditional financial measures with objectives and measures in three additional areas; Customers; Internal Processes and, Learning & Growth. Your scorecard will contain Strategic Objectives and measures that will articulate how your organisation will look different to your Shareholders and Customers when you reach your goals. It will also indicate how your Internal processes and your potential to Learn and Grow will change. The development and implementation process is a way of cascading from the top of your organisation it s Mission & Strategic Direction in a way that strengthens the alignment throughout the organisation. Further information - The Measures That Drive Performance: Harvard Business Review; January-February The Discipline of Market Leaders; Treacy & Wiersema, Addison- Wesley, Using the as a Strategic Management System: Harvard Business Review; January-February The : Translating Strategy into Action, Dr. David Norton and Professor Robert Kaplan, Harvard Business Press, Why CEOs Fail; Ram Charan & Geoff Colvin; Fortune Magazine, June 2, The Link between the EFQM Excellence Model & the Balanced Scorecard: Geoff Carter & Gaelle Lamotte; First published in support of an EFQM Conference in December Performance Drivers: A practical guide to using the ; Olve, Roy & Wetter; John Wiley & Sons Ltd. ISBN Fair Process: Managing in the Knowledge Economy; W. Chan Kim & Renee A. Mauborgne; Harvard Business Review; February The Strategy Focussed Organisation; Kaplan & Norton; Harvard Business School Publishing Corp. ISBN , Kaplan & Norton s website address is

20 Improvement Developing a Author: Geoff Carter Resource: Excellence One

21 3. Improvement 3.1 Developing a There are a number of ways in which an organisation can develop its own Balanced Scorecard, for instance, the 11 steps proposed by Olve, Roy & Wetter in their book "Performance Drivers". For the purposes of this article, we will focus on a 3 steps process based on the Step 1: Define the Strategic Direction and identify the key themes that drive the strategy Step 2: Build the strategic linkages and determine measures and targets Step 3: Select priority initiatives and plan for implementation As with any other change initiative, the support of the senior management team is crucial and they will need to be engaged in the process. Typically, this is achieved by involving them at four stages in the process. 1) Launch meeting; where they become familiar with the, its potential benefits, the project plan for implementation and individual roles and responsibilities 2) Workshop #1; where they debate and take ownership of the work done to identify the strategic direction, the key themes and the strategic linkages and confirm next steps 3) Workshop #2; where they agree on the Measures and that will underpin the themes and objectives that drive the strategy. 4) Workshop #3; where they agree the final, the supporting initiatives, the deployment and communications plans Although the involvement of senior management is crucial, a team of people from across the organisation will do much of the work under the guidance of an experienced Team Leader. Tasks they will become involved with include the following: - Gather and analyse relevant data Interview key personnel Create proposed scenarios for the future, the strategic direction, sample Strategy Maps, possible objectives and measures Document the process and the outcomes

22 The time it takes to develop the will vary from case to case. Factors such as organisational size, availability of meaningful data, commitment and availability of senior management etc. will all influence the end to end time-scale. However, in general, one should look to complete the end to end process within a 3-4 month period. Step 1: Define the Strategic Direction and identify the key themes that drive the strategy When developing the Strategy of an organisation it is just as important to be clear on what not to do as what to do. The has proven to be a powerful tool for forcing the decision maker(s) to focus on what they see as the most important aspects of their business as they develop and deploy the organisation's strategy. The purpose of step 1 is to refine and validate the current Mission and Vision of the organisation. This refinement and validation will include items such as past performance of the organisation, industry trends, competitive benchmarking and the use of tools such as SWOT analysis (Strengths, Weaknesses, Opportunity and Threats) / PESTLE (Political, Economic, Society, Technological, Legal, Environmental) analysis. Then you need to Identify the Key Themes driving the Strategy This is undertaken to identify the 3 5 major themes that the organisation must commit to if it is to be successful in accomplishing the strategic direction that has been confirmed and validated in step 1. For an example of what we mean by Key Themes, consider the work of Treacy & Wiersema in their book, The Discipline of Market Leaders. Their research identified three common strategic themes that emerged from the organisations they had investigated. Product Leadership (Innovation) Customer Intimacy Operational Excellence In any organisation's, the 3-5 Strategic Themes should be definable, discrete but mutually achievable and clearly linked and supportive of the overall strategic destination. Step 2: Build the strategic linkages and determine measures and targets For each of the Strategic Themes that have been identified for an organisation a set of linked objectives needs to be developed. They can be documented in an Improvement activity Charter

23 By linked objectives we mean objectives that are spread across the four Dimensions and related to each other. Each objective should be inspirational in nature and help to tell the overall story of the strategy. It should be formulated to include a verb plus an adjective plus a noun. For instance "Reduce the costs of transactions" A Tree diagram can help to formulate them Clearly the Strategic Themes mentioned above are not the only possibilities but imagine for a moment if your organisation had a Strategic Theme of Customer Intimacy. What would you expect to see in each of the Dimensions that linked this all together? One example could be as follows. Starting with the Financial Dimension, the objective is to increase profitability Which could be achieved through the Customer Dimension objective Retain existing Customers - who are attracted to stay with us (and recommend us to their friends) because they value the personalised nature of the relationship - Which the organisation can deliver on through its Internal Dimension - where we have a strategic objective Provide systems that deliver accurate, timely and relevant information on each Customer - Which can be accessed easily by the staff, who, within the Learning & Growth Dimension, are involved in the objective Provide training in Customer Relationship Management and Telephone Handling Skills for all front line staff. Then you need to determine measures & targets Linking measurement to strategy is the cornerstone of a successful strategy deployment process. Many organisations use more measures than they can handle, the Balanced Scorecard approach requires managers to agree on only those measures that are most critical to the success of the organisations strategy. Perhaps using only measures in total. See Organisation Scorecard Having presented the outcomes to the senior management team and gained their agreement to the Strategic Direction, Strategic Themes and Linked Objectives in Workshop 1, the next step is to develop measures and target for each of the linked objectives. Depending upon the "business maturity" of the organisation it will most certainly already have a number of financial measures in place but it may be weak in the quality and quantity of measures in the other Dimensions

24 Measures come in many forms; Ratios; Percentages; Indices; Ratings; Absolute Numbers; they all have their strengths and weaknesses. The overall package of measures chosen should meet the following criteria. A balance of leading (operational) and lagging (perception) measures Help to communicate the strategy Help to motivate the organisation Drive the desired behaviours Be repeatable and reliable Accountability/ownership for the measure is clear As a guideline your Measures should comply with the following: - One Leading (Enabler) & Lagging (Perception) measure for each Strategic Objective The Leading (Enabler) measures will be more prevalent in the Internal and Learning & Growth Dimensions In total, no more than measures across the whole Balanced Scorecard. Measurement is invariably an emotive subject in organisations, instinctively many people do not like them and gaining acceptance is a crucial step in the overall process of a successful implementation. Measurement should be seen as a tool for communication, for identifying problems and addressing them as soon as possible and for learning. If measurement is used to apportion blame then people will very quickly find ways to work around the system. See Measurement System Checklist Having determined the measures that will be used to support the Strategic Direction, the next step is to identify the targets to be associated with the measures. The measure tells us how we intend to assess performance; it is the target that tells us how and where we have to improve to achieve the desired level of performance. When setting the target for the future it should be based on current performance levels, organisational aspirations, available resources and external data such as benchmarking the performance of your competitors and "Best in Class" organisations from other sectors. It is useful to bear I mind the following guidelines when selecting target(s) There should be just one target for each measure to avoid confusion Targets should be quantifiable, i.e. a time/cost/quality aspect

25 There should be a clear, logical linkage between the target, the measure, the objective, the theme and the overall strategy Some of the targets should be "Stretch", i.e. they help keep the organisation focussed on the mid long term as well as the short term and encourage innovation to achieve the desired level of performance. Targets should be mutually supportive. For instance, it is pointless setting targets for different strategic objectives across the four Dimensions within the same Strategic Theme if overall they force conflicting actions. Step 3: Select priority initiatives and plan for implementation Most organisations will have a number of improvement initiatives running at any one time. Introducing the gives organisations the opportunity to perform a "sanity check" on these initiatives, making sure that they support the agreed Strategic Direction and confirming exactly which strategic theme(s) they are related to. An analysis of the various initiatives is the final link in the process for mapping out the road by which the organisation will travel towards its desired future. The first step is to identify the sum total of all the initiatives that the organisation is currently involved in. you can use one or more Tree diagram to summarise them. The second step is to map these initiatives to the Strategic Objectives, where applicable. Where they do not map then a potential saving in resources is immediately apparent. Step 3 is prioritisation. To facilitate this part of the process as smoothly as possible, it is very important to have an agreed filter through which each initiative must pass. If all initiatives end up passing through then the filter is not good enough. The objective here is to focus on what is THE most important. You should be looking to do less not more in this area! See Selection matrix Step 4 requires the organisation to step back and see if there are any areas in which there are no initiatives supporting a strategic objective! It is imperative at this stage that the organisation employs "fair process" i.e. the criteria for selection is understood and the process is clear and accepted by all. Without this an organisation runs the risk of initiatives that survive the process being categorised as "we are only doing this because Manager "X" made a big fuss and (s)he was the one who introduced it in the first place. Then, you need to plan for Implementation

26 At this stage the Strategic Direction and linked Strategic Objectives are finalised, most, if not all measures have been agreed as have the Strategic Initiatives the organisation will start/continue with. There is no single, all-encompassing and definitive list that is applicable to all organisations for producing the implementation plan. Situational needs will strongly influence both the various steps to be undertaken and the order in which they are processed. However, a generic list could include the following activities Develop a communications plan for cascade of the outcomes from the development process and the next steps to all employees. Agree to what level the is going to be deployed Agree the level to which team and personal objectives linked to the Balanced Scorecard will be cascaded Agree what the recognition and reward scheme to encourage the commitment to the process will be. Ensure budget is available for the Strategic Initiatives Agree and create the reporting system and periodicity of reporting Last, but not least, agree in advance when the management team will review the process and its outcome. See Deployment and Implementation review checklist

27 Research Information vs. EFQM Excellence Model Author: Pro. Mohamed Zairi Dr. Yasar Jarrar Phd. MSc. BSc Resource: Excellence One

28 4. Research Information 4.1 vs.efqm Excellence Model According to 2GC Active Management (2000), the (BSC) and the EFQM Excellence Model (BEM) measure an organisation's performance to drive organisational improvement - generally by highlighting current shortfalls in performance to management teams. Both have been widely adopted in recent years, address similar issues, and benefit from the support of powerful advocates in the form of current users, consultants and software suppliers. The tools are characterised by the differences in their design and management processes. The Design Process - The BSC development processes aim to create BSC designs that represent clearly and concisely the specific goals selected by an organisation. 2GC maintains that good BSC designs also describe the management team's assumptions concerning 'causality' i.e. - how and why a set of activities will effect the achievement of strategic results. A similar consideration of 'enablers' and 'results' is a feature of the BEM (see figure 1). [Figure 1: EFQM Excellence Model] The BEM development process assumes a standard set of strategic goals apply to all organisations. This simplification makes the BEM design process easier, and enables standardised 'benchmarking' between organisations, even if they are active in different markets, or industries. 2GC also argues that the key difference between the two development processes is the extent to which they can claim to reflect specific strategic goals. The BEM bypasses this and, using a simpler design process, majors on its benchmarking attributes. The BSC approach is necessarily more complex because it has to describe and reflect an organisation's specific strategic goals

29 Moreover, since strategic priorities vary from organisation to organisation, data from the BSC are unlikely to support 'benchmark' comparisons. However, unlike BEM, they are much more likely to provide information directly relevant to an organisation's strategic performance. The Management Process - 2GC states that good BSC designs explain uniquely for each organisation its management's plans to drive improved performance. The best design processes use this activity to identify the priority areas of performance required to deliver the unique strategic goals selected by the management team. This makes it easy to use the BSC as the basis of a strategic management process. Furthermore, budgets, strategic plans, incentives and rewards, for instance, can all be linked, with a high degree of confidence that the measurement of each activity will be aligned to the achievement of strategic goals. Since the measurements based on BEM designs that use 'benchmark' data can drive improvements in process execution - improvements are useful, but not necessarily relevant to an organisation's strategic goals and priorities. Central to the BEM is the consistent focus on the structure of model itself (and so the strategic priorities it describes). Adoption of generic strategic priorities build around process improvement, particularly when coupled with Benchmark comparisons can be value adding for many organisations at an operational level. However, emphasis on generic aspects of strategic effectiveness makes BEM less useful influencing the achievement of specific strategic management goals. Conscious of this, experienced users of BEM have found it necessary to augment its data with the BSC to ensure that they have an effective strategic management system. The key criterion for differentiation between the two processes concerns the extent to which - in the final system design - they attempt to reflect the specific strategic

30 goals of the organisation for which they are being developed. Table 3 helps to identify the circumstances when each model might be more applicable. [Figure 3: Choosing the most appropriate tool for the task at hand - 2GC Active Management (2000)] Purpose To perform regular "Health checks" of all business processes identifying strengths and weaknesses To initiate and drive a continuous process improvement programme To enable external benchmarking of company processes To develop a "checklist" indicating "Good practice" used for business planning and evaluation To improve understanding of cause and effect aimed at Informed and improved management decisions and actions To align operational activities with strategic priorities, based on vision/mission statement To prioritise strategic initiatives To facilitate two-way communication of strategy and strategic issues across large organisations To focus management agenda more on future strategic Issues than on historic financial issues Choice Of Model The EFQM Excellence Model The EFQM Excellence Model The EFQM Excellence Model The EFQM Excellence Model The The The The The Conclusions In spite of sharing a number of apparent similarities, 2GC argues, the BSC and the BEM are based on fundamentally different concepts about how best to improve the performance of an organisation. The BSC favours a clear focus on the specific strategies adopted by an organisation, providing a robust tool onto which other management processes can be built - at the expense of a more complex design processes: the BSC is based on a dynamic and individual abstraction rooted in explicit cause and effect relationships. The BEM, on the other hand, is based on a static design derived using "plausible logic" and contains a standard set of strategic objectives applied to all organisations using BEM equally - and only implicit representations of the "generic" cause and effect relationships that link the strategic objectives together. But the use of this standard model facilitates the use of a much simpler design process, and the "benchmark" comparison of BEM outputs between the entire universe of organisations using the tool. The strengths and weaknesses of both models will however depend on the purpose for which they are being used

31 About the authors: 2000 European Centre for Total Quality Management, School of Management, University of Bradford, Emm Lane, Bradford, BD9 4JL. This report cannot be reproduced or transmitted in any form or by any means electronic or mechanical, including photocopying, faxing, recording or information storage and retrial without the permission of the authors

32 Research Information A closer look at each of the models and how they work vs EFQM Excellence Model Author: Geoff Carter Resource: Excellence One

33 4.2 A closer look at each of the models and how they work vs EFQM Excellence Model Indeed if we examine how the two Models work in practice more closely, we discover two models with unique characteristics and style, each best suited to deliver the benefits it was designed for. The mechanics and logic behind each Model sets them apart. All of these characteristics set the Model apart. The characteristics described in further detail below fundamentally explain why users of either Model follow a different thinking processes and adopt a different perspective on performance measurement. Characteristics Excellence Model & Self-Assessment Characteristics Context dependent: tailored every time A company's Balanced Scorecard is driven off its strategy and vision and represents the unique position and strategy of the company Every is unique in its objectives and measurement for a company Less context independent: best practice benchmark The Self-Assessment process assesses an organisation's current processes against a set of pre-described criteria The industry/sector influences the interpretation Prescriptive and focused It identifies a unique and focused set of priorities which the management team Descriptive and comprehensive Comprehensive description and assessment of how processes across the organisation are

34 believes will deliver the strategy Focusing on the key few drivers of success is essential managed and deployed There is no prioritisation of one activity over another inherent in the model Hypothesis driven and subjective The forces assumptions and value judgements to be made about how to reach the level of performance described in the vision and strategy It represents the insights, educated opinions, expertise and knowledge of the management team with respect to the company's drivers of success. Fact based and objective The Model is populated by facts and data gathered within the organisation. It is thoroughly documented from objective sources of information. Criteria and measurement used are the same for any organisation to enable benchmarking Aspirational - To-be view of the company The is built around a vision for what an organisation wants to achieve 2-5 years in the future It starts from the vision and works its way back to the present to identify the gaps and the strategic roadmap The defines the required high level step change (typically financial) in to fulfill the Current - As-is view of the company The Self-Assessment outcomes describe the current state of the organisation's processes It identifies relative strengths and areas for improvement today across the whole set of activities based on the objective criteria Self-Assessment outcomes do not pass judgment as to which activities need to be focused on based on a view of the future The EFQM Excellence Model encourages continuous