Management Case Study Executing Strategy and Aligning Financial Planning: Balanced Scorecard Best Practice at RBGE

Management Case Study Executing Strategy and Aligning Financial Planning: Balanced Scorecard Best Practice at RBGE For more information please visit: www.ap-institute.com

Executing Strategy and Aligning Financial Planning: Balanced Scorecard Best Practice at RBGE By Bernard Marr* and James Creelman Abstract: This case study explains how RBGE created a strategic performance management framework that contains objectives in five interconnected perspectives. The framework depicts how its activities deliver the desired impact and outcome objectives, all of which are underpinned by resource and governance objectives. The case study also describes how the Strategic Objective Costing System has been aligned to the Balanced Scorecard so that it provides information to senior management on where staff efforts (and costs) are being deployed and how this is contributing to the delivery of the strategic objectives. Version: 02January 2012 * corresponding author Bernard Marr is the Chief Executive and Director of Research at the Advanced Performance Institute. E-mail: bernard.marr@ap-institute.com James Creelman is working in the Strategic Planning and Quality Management Section of the Ministry of Works, Bahrain and is a Fellow of the Advanced Performance Institute. The Advanced Performance Institute (API) is a world-leading independent research and advisory organisation specialising in organisational performance. It provides expert knowledge, research, consulting and training to performance orientated companies, governments and not-for-profit organisations across the globe. For more reading material or information on how the API might be able to help your organisation please visit: www.ap-institute.com How to reference this case study: Marr, B., and Creelman, J.(2012) Executing Strategy and Aligning Financial Planning: Balanced Scorecard Best Practice at RBGE, Management Case Study, The Advanced Performance Institute (www.ap-institute.com). 2012 Advanced Performance Institute, BWMC Ltd. (All rights reserved) www.ap-institute.com Page 2

Executing Strategy and Aligning Financial Planning: Balanced Scorecard Best Practice at RBGE Introduction Founded in the 17th century as a physic garden, the Royal Botanic Garden Edinburgh (RBGE) is a world-renowned centre for plant science and education. RBGE s 250 employees are committed to the building of public understanding, scientific capacity and world class research to shape a better future for all and to champion the importance of plants as the foundation of the biosphere. This commitment is crystallized in a focused mission: Exploring and explaining the world of plants for a better future. Boasting a rich living collection of plants across four gardens in Scotland, RBGE is organized into four divisions: Science, Horticulture, Corporate Services and Enterprise, with a directorate staff supporting the Regius Keeper (the Chief Executive Officer) Professor Stephen Blackmore CBE FRSE, whom is also appointed the Queen s Botanist in Scotland. Governed by a Board of Trustees appointed by Scottish Ministers, RBGE is a Non Departmental Public Body that is sponsored and supported financially (approximately 74%) by the Scottish Government s Rural Payments and Inspections Directorate. RBGE also receives income from research grants, commercial activity, admisions, education courses, donations and other capital grants. Reasons for Introducing the Balanced Scorecard The Balanced Scorecard (which comprises a Strategy Map see Figure 1 and an accompanying set of Key Performance Indicators KPIs - and targets) is the RBGE s framework for delivering its mission and therefore executing its strategy. The present Balanced Scorecard was configured in 2010 but evolved iteratively from an initial scorecard system that was established and implemented in 2004. Dr Alasdair Macnab, the Director of the Corporate Services Division (responsible for the organization s finances, personnel, estates management, ICT requirements, corporate planning and performance management amongst other services) explains that the scorecard was introduced primarily as a mechanism for creating and implementing corporate plans that met the requirements of both RBGE and the Scottish Office (a department of the UK government until 1999) and then the Scottish Government (following that year s establishment of the Scottish Parliament). Although corporate planning commenced in RBGE in 1988, it had long struggled to produce corporate plans that were both of strategic and practical value to the organization while also being acceptable to the Scottish Office, he says, adding that this failure was in part due to the vagueness of the generic performance guidelines that were issued by the Government. 2012 Advanced Performance Institute, BWMC Ltd. (All rights reserved) www.ap-institute.com Page 3

Figure 1: RBGE Balanced Scorecard Strategy Map 2012 Advanced Performance Institute, BWMC Ltd. (All rights reserved) www.ap-institute.com Page 4

This became a source of irritation, frustration and ultimate disillusionment to RBGE staff, who felt there was no useful collaboration with Scottish Office officials and who therefore began to perceive corporate planning as little more than an annual exercise completed solely for the benefit of the Scottish Office. That said, despite the challenges RBGE s senior staff continued to expend significant amounts of time and effort into developing corporate plans and supporting divisional strategies that jointly were intended to inform future work as well as serving as a useful internal communication mechanism. It was clear from internal interviews carried out in 2009/2010 that staff members did find the corporate and divisional plans useful for learning more about their organization and what activities other than their own were carried out, comments Macnab. However, what became apparent from the interviews and documentary analysis was that staff suffered from a lack of clear understanding of what was required of them. Macnab recalls that contributing to these failures was the lack of a suitable framework to bring together all available information in a cohesive and integrated way that would permit a strategy for the future to be formulated and that would also capture and benefit from the input from a variety of expert staff at differing organizational levels. It was concluded that if RBGE was able to identify a framework that would guide and focus the efforts in developing a corporate plan, that internal staff would be better informed about how their activities contributed to the overall success of RBGE and would provide a basis for informed discussions with the Scottish Government, our principle external stakeholder, he says. Additionally, if a methodology could be identified and constructed that would match costs to objectives then a more rational basis for resource allocation could be put in place to assist senior management with prioritization of activities and thereby improve the governance processes at RBGE. Macnab continues that although there was an abundance of material contained in the plans, they lacked a logical way to synthesize the plans which came from the divisional levels up to the corporate level. What was missing was an understanding amongst the senior staff that the divisions had to work together to achieve the overall corporate strategy, he says. Because of the frustrations arising from this inability to communicate effectively downwards (to staff) or upwards (externally to the Scottish Office) these difficulties manifested themselves in a failure to fully implement our strategy and typically the organization simply carried on with its current work programs with little concern for the future. With a previous employer, Macnab had trained as a lead assessor for the European Foundation for Quality Management (EFQM) Excellence Model (1). Although supportive of the Model, he concluded that it was unsuitable for the needs of RBGE. The rigidity in applying the model was one downside as was the fact that a team of assessors would need to be trained to conduct the required assessments against the Model s nine criteria, a resource requirement that would not be tolerated within RBGE, he recalls. In scouting for an alternative, Macnab turned his attention to the Balanced Scorecard, which he was aware of thanks to his professional management accounting training (CIMA). I built on the 2012 Advanced Performance Institute, BWMC Ltd. (All rights reserved) www.ap-institute.com Page 5

knowledge I had by reading a number of books and articles on the Balanced Scorecard and I noted its popularity amongst a cross section of types of organizations, each of which claimed to be able to use it successfully, he says. I considered that of all the popular frameworks available the Balanced Scorecard would be the most likely to meet the needs of RBGE. He adds that he believed that there was also an opportunity to develop an effective costing system to support RBGE s strategic management needs by associating a costing system with the Balanced Scorecard (which eventually led to fruition see below). Scorecard Evolution The Balanced Scorecard was introduced to RBGE s Senior Management Group during the 2004 annual planning conference. The original Balanced Scorecard comprised the four perspectives of audiences; governance; internal resources; and staff, resources and infrastructure. The Senior Management Group Planning Conference reviews the Balanced Scorecard each September for currency and relevance and amends as required and which serves as the first stage of the annual corporate/strategic planning cycle. The first iteration in 2004 posed challenging questions such as who were our audiences, which was quite illuminating and it took time to remove the perception of that all the customers were internal, says Macnab. Gradually evolving in content and form, the Balanced Scorecard become a valuable tool for more effectively implementing the strategy of RBGE, communicating with the Scottish Government and for encouraging the divisions to work effectively for the greater good of the organization. But a major scorecard update commenced during the RBGE Senior Management Group Planning Conference in September 2009: a revision which Macnab calls the second implementation phase. Part of the reason for a major review and update was that the senior management team was preparing for the November 2009 Strategic Review Group a quinquennial (five yearly) review of the RBGE s Science, Horticulture, Education, and Visitor Services offerings by a panel of international experts on these various output activities carried out by the RBGE. This forthcoming review very much focused the minds of the Senior Management Group as the global reputation and standing of the RBGE stood or fell by the report from the Strategic Review Group, Macnab explains. Additionally, the Strategic Review Group was expected to make constructive suggestions to the RBGE on strategy and, therefore, their views would be taken into account when formulating the Corporate Plan. Scottish Government s National Outcomes: A Fifth Perspective A more powerful reason for a substantive review of the scorecard was the introduction of the Scottish Government s National Outcomes in January 2009. These outcomes represent the vision of the Scottish Government to create a more successful country where all of Scotland can flourish by increasing sustainable economic growth. This set out their ambition to live in a successful Scotland: a healthy, safe, well-educated country, with a vibrant economy and opportunities for all. A Scotland that is fair, tolerant and green. All public bodies had to contribute to at least one National Outcome. 2012 Advanced Performance Institute, BWMC Ltd. (All rights reserved) www.ap-institute.com Page 6

The requirement for RBGE to link to these outcomes led to the formulation of a fifth Balanced Scorecard perspective, called simply: Scottish Government National Outcomes. As much as anything this addition would fully align the work of RBGE with the requirement of the Scottish Government, which had been evolving for a number of years from a very poor position (as cited earlier). A revised Balanced Scorecard was prepared in early 2010, with all divisions reporting to the new version from April 1 2010 the beginning of RBGE s financial year. The strategy maps for the RBGE and divisional scorecards were redrawn, new objectives statements written, development of work programs - which described the supporting activities for objectives- designed and written, and new relevant measures discussed with staff and agreed with directors before being attached to the objectives within each scorecard, he explains. Of the myriad benefits delivered through the new scorecard, Macnab argues that most importantly, perhaps, was that of adding this fifth perspective. In 2010, RBGE presented a Corporate Plan that set out the direct contributions that we make to the achievement of eleven of the National Outcomes set by the Scottish Government, he says. Subsequently, the First Minister [the leader of the Scottish Government] wrote to express his appreciation of the way in which we had been able to make direct linkages from our Impacts to the National Outcomes, (see below for a description). Moreover, Macnab adds that by understanding and relating to the macro-environment it became easier to better position RBGE when making cases for support from Government funding for projects of various kinds. An example being the major refurbishment of the RBGE glasshouses which would contribute to Scotland s carbon reduction targets as well as reducing significant energy costs, thereby increasing efficiencies at a micro-economic environmental level, he says. RBGE 2010 Balanced Scorecard The Corporate Plan Perspective 1: The Scottish Government National Outcomes Visually described in figure 1, the eleven Scottish Government National Outcomes with which RBGE is aligned sit at the top of the RBGE Strategy Map: outcomes such as research and development, environmental impact, and public services. Figure 2 shows RBGE s KPIs and Targets for the National Outcomes. Perspective 2: Impacts Descending down the Strategy Map we find RBGE s Impacts, of which there are eight. These capture the key effects that RBGE has on society and therefore the delivery of the outcomes: Impacts such as discovery, conservation, and improving quality of life. Each impact has a brief description that is then more fully explained and is supported by KPIs as well as a listing of key partners with whom RBGE must work closely with to most effectively deliver the impact. For example, Discovery, is described as: We will champion innovation and generate new knowledge as a centre of excellence in plant biodiversity, taxonomy, systematics, and horticulture. This work is the foundation upon which our Institution s reputation and expertise is built. Our research is user driven and for the benefit of other bioscientists, 2012 Advanced Performance Institute, BWMC Ltd. (All rights reserved) www.ap-institute.com Page 7

the Government, conservationists, naturalists and the public. The detailed explanation considers the role of the discovery objective on both a national and international level. For example, a section reads: RBGE is Scotland s leading international player in plant systematics and biodiversity and we contribute to the Nation s role in global initiatives to describe the world s plant biodiversity, and later states: Our science underpins endeavours that address environmental challenges in biodiversity conservation, climate change impacts, conservation of ecosystem services, promotion of sustainable use, habitat restoration and poverty alleviation. A KPI considers the total number of publications and key partners include Scottish Government s Directorate for Rural & Environment Research and Analysis (RERAD), University of Edinburgh, and Consortium for the Barcode of Life (CBoL), which is an international initiative devoted to developing DNA bar-coding as a global standard for the identification of biological species Perspective 3: Activities Next on the Strategy Map we find RBGE s five Activities. Collectively these represent the primary work of a research botanic garden. These Activities are aligned upwards to achieve the Impacts, which in turn contributes to achieving the National Outcomes: Activities such as biodiversity, education, and environmental sustainability. As with Impacts, the Activities are fully explained, and are supported by KPIs and a listing of the key partners. For example, a part of the description of Environmental Sustainability, reads, RBGE aims to place the principles of sustainability at the heart of all its activities. These principles will embrace the fundamental role of plants to a sustainable planet, the protection and enhancement of the natural and cultural heritage, and the recognition and understanding of the effects of climate change. An Environmental Sustainability KPI is Tonnes of CO2e Produced and key partners include The Scottish Government and Carbon Trust Scotland (an independent not-for-profit company set up to accelerate the move to a low carbon economy). Resources Returning to the RBGE Strategy Map, supporting Activities we find the resource areas requiring investment: resources such as people, land and buildings, and finance. These Resources are described and have fully fleshed out strategies. Strategic Objective Costing System Given the enormous resourcing challenges that UK public sector must contend with over the coming years, a pioneering Strategic Objective Costing System has been implemented by RBGE and provides useful insights into safeguarding strategic investments when purses are tight. One of the dangers of any crises, including financial ones, is for organizations to switch to concentrating on saving input costs without due regard to the impact on outcomes which after all is the purpose of the organization, explains Macnab. The Balanced Scorecard, combined with our Strategic Objective Costing system, will help keep the organization focused on its outcomes, meaning that we will be better placed to deploy our scarce resources to best 2012 Advanced Performance Institute, BWMC Ltd. (All rights reserved) www.ap-institute.com Page 8

effect by understanding the impact of our actions on the objectives. is doing and achieving and, therefore, governance is improved. To explain, the principal purpose of strategic objective costing is to provide information to senior management on where staff effort is being deployed either directed or self managed. Macnab explains that because organizational structures do not necessarily follow the corporate strategy, there is inherently a disconnection between the financial information provided from cost centre reports and reporting on the achievement of strategic objectives. The results from this innovative accounting process overcome such deficiencies by showing information on which staff members contribute to each strategic objective, and also how the staff members grouped by cost centres contribute to one or more strategic objectives, he says. With costs for achieving the strategic objectives calculated, a Strategic Objective Budget is then developed. For control purposes the budgets are allocated to Divisional Directors and then delegated to cost centre managers and therefore the Strategic Objective Budget is also reconciled to the traditional cost centre budgets to enable effective management control activity to occur. Macnab continues: As we monitor progress monthly we can adjust emphases throughout the year to maximize overall achievements. The Strategic Objective Costing system provides the necessary information to show the input costs for each strategic objective which can then be married up to the KPIs that are linked to these objectives. The Balanced Scorecard conjoined with this costing system increases the Board s and executive management s knowledge of what the organization Governance A Governance perspective is found at the base of the RBGE Strategy Map and is the way that RBGE directs and controls its functions and relates to its stakeholders: There are three Governance objectives: Management and Control, Strategy, and External Relations. Macnab neatly describes the causal link from the Governance perspective through the other enabling perspectives and ultimately to the Scottish National Outcomes. A great benefit of the Balanced Scorecard is that it enables the Senior Management Team to assess the relationships between the objectives in each perspective with those in other perspectives, he says. As one illustration, by selecting suitably qualified staff (pe ople) and investing sufficient financial resource (cash) high quality biodiversity research (Activity) can be carried out leading to RBGE s Discovery (Impact) occurring which in turn contributes to Research and Innovation (Scottish Government s National Outcome). Another example of the cause and effect relationship could be the investment of capital funding in a new Visitor Facility to provide improved educational, retail, catering and exhibition offerings. As a consequence of this investment the visitor numbers increased, the financial returns dramatically improved and greater communication of our purposes was achieved by the increased visitor flow through our exhibitions. 2012 Advanced Performance Institute, BWMC Ltd. (All rights reserved) www.ap-institute.com Page 9

Divisional Scorecard The RBGE Corporate Balanced Scorecard is supported by aligned scorecards for each of the four divisions. Each divisional scorecard is designed to contribute to the corporate objectives and the measures attached to each divisional objective are capable of being abstracted up the hierarchy, thereby ensuring alignment. The contributing divisional objectives are discussed and agreed by me and our coordinator in consultation with the divisional directors who will have previously held discussions with and obtained ideas and agreement from their Heads of Departments, explains Macnab. He continues that those Heads of Departments will have consulted with their staff, thus ensuring organizational buy-in to the goals and objectives. These objectives are then reflected in the individuals forward job descriptions against which individual performances are judged during the personnel appraisal process. It should be made clear that there is sufficient flexibility to allow for emergent strategies to come forward during the planning period and for the system to be amended /updated reflecting agreed changes. Staff Involvement Macnab stresses the critical importance of involving staff in developing the divisional scorecards, that discussions on objective definitions and the selection of metrics has led to strategy and corporate planning entering the everyday vocabulary of staff and so is no longer confined to just a few very senior members of staff. There is much greater awareness of what the organization is trying to achieve and how it is going about it, he says, adding that, It is also easier to communicate in an intelligent manner the future strategy and expected performance in days of severe restraint in public sector financing and the resultant resourcing constraint that RBGE, as with all similar organizations, must live with. Moreover, the Balanced Scorecard is proving a useful framework for encouraging continual dialogue between the various levels of the RBGE s hierarchy with emergent views on how to improve the current strategies being proposed by staff members who had engaged with the strategy making process. This is attributable to the fact that the staff care about their work and the Balanced Scorecard provided them with the means to articulate their concerns and hopes, Macnab explains. Of course, in such an environment some unpleasant truths will emerge but as long as management view this as a positive outcome rather than destructive criticism then the organization can improve its performance as a consequence. As a measure of how the scorecard is enabling lineof-sight from individual performance to organizational strategic objectives, Macnab cites the link with Scottish Government s National Outcomes. By developing the fifth perspective in the Balanced Scorecard, staff are more aware of the Scottish Government s agenda and are able to see where their personal contributions make a difference to RBGE and in turn those of the Government, he comments. Performance Reporting To report performance to the scorecard, a staff member from Corporate Services produces reports from the performance management system (RBGE 2012 Advanced Performance Institute, BWMC Ltd. (All rights reserved) www.ap-institute.com Page 10

uses a customized performance management software application). A report is presented monthly to the Senior Management Team and the Board of Trustees, explains Macnab. The reports provide quantitative data (the KPIs), narrative analyses, recommendations for action, objective costs, and risk profiles. The decisions taken on the recommendations by the Senior Management Team are recorded and the report is then published on our intranet for all staff to view. Key Challenges in Scorecard Implementation As with most organizations, RBGE has experienced some challenges in scorecard implementation. One challenge was that there were staff members that did not complete their reports on time, despite full explanation, consultation and training had taken place and the opportunity to be involved with the descriptions of the objectives and design of the measures within the system had been afforded. Macnab explains that when discussing the matter with some of the individuals involved it became apparent that some staff were simply, railing against the notion of being held accountable for their actions, he says. This seemed to reflect on their past working practices where they, for the most part, self-determined their research activities and their science strategy had been largely a rehearsal of the work they wished to carry out to pursue their own academic interests. They were not used to being directed on their work or, indeed, explain what they were doing. However, in more recent times, and certainly since 2007, the Science Division had developed a strategy which aimed to align with Scottish Government s biodiversity strategy and other plant science strategies of a more global nature. Therefore, to some extent the concept of working to a plan not of their own making was no longer foreign to them. To overcome this challenge and others that were related to buy-in, the Senior Management Group continually endorsed the purpose of the Balanced Scorecard and supporting performance management system and reaffirmed their backing for its implementation. I also realized that I would need to spend a considerable amount of time communicating with and teaching my colleagues as to what was required and what sort of information they should put into the system, comments Macnab. Conclusion Although the Balanced Scorecard is now wellestablished and successful within RBGE, Macnab states that there is nothing particularly out-of-the ordinary to explain the success. The welldocumented critical factors for a successful Balanced Scorecard implementation apply as much to RBGE as any other organizations. These, he explains, include adequate communications on purpose, feedback of results to staff, training on process and performance management systems, cascading to lowest level etc. However, the most critical factor is most definitely strong leadership and commitment from the senior management team, he says. It is they who are ultimately responsible for the success or otherwise of the strategy. www.ap-institute.com For more case studies, reports and articles visit www.ap-institute.com 2012 Advanced Performance Institute, BWMC Ltd. (All rights reserved) www.ap-institute.com Page 11

References: 1. The EFQM Excellence Model is used as a basis for self-assessment, an exercise in which an organisation grades itself against nine criteria, five enablers :Leadership; Strategy; People, Partnerships & Resources; Processes; Products and Services; and fur results criteria: Customer Results; People Results; Society Results; and Key Results This exercise helps organizations to identify current strengths and areas for improvement against strategic goals. This gap analysis then facilitates definition and prioritisation of improvement plans to achieve sustainable growth and enhanced performance. For more information see http://www.efqm.org Further Reading 2.. 3. 4. Bernard Marr (2012), Key Performance Indicators the 75+ measures every manager needs to know, FT Prentice Hall, Harlow Bernard Marr (2010), The Intelligent Company: Five Steps to Success with Evidence-Based Management, Wiley, Oxford 5. 6. Bernard Marr and James Creelman (2011), More with Less: Maximizing Value in the Public Sector, Palgrave Macmillan, Basingstoke Bernard Marr (2006), Strategic Performance Management, Butterworth Heinemann, Oxford 7. 8. 9. Bernard Marr (2009), Managing and Delivering Performance: How Government, Public Sector and Not-for-profit Organizations can Measure and Manage what Really Matters, Butterworth- Heinemann, Oxford Marr, Bernard (2010), Balanced Scorecards for the Public Sector, Ark Group, London Find out more and read free sample chapters: http://www.ap-institute.com/books.aspx 2012 Advanced Performance Institute, BWMC Ltd. (All rights reserved) www.ap-institute.com Page 12

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