Measure What Matters

A P Q C
I N T E R N AT I O N A L
B E N C H M A R K I N G
C L E A R I N G H O U S E
Copyright 1999 American Productivity & Quality Center. Please see disclaimer.
Measure What Matters:

Aligning Performance Measures
with Business Strategy
CONSORTIUM LEARNING FORUM

BEST-PRACTICE REPORT
AMERICAN PRODUCTIVITY & QUALITY CENTER

123 NORTH POST OAK LANE, HOUSTON, TEXAS 77024-7797 713-681-4020
2000 AMERICAN PRODUCTIVITY & QUALITY CENTER. ALL RIGHTS RESERVED.
MEASURE WHAT MAT TERS
Project Personnel
Project Team
Carmen Clarke, Neil Peltier
American Productivity & Quality Center
Information Services
Nancy Fleshman
American Productivity & Quality Center
Study Expertise
Arthur M. Schneiderman
Arthur M. Schneiderman Consulting
Rick Martin
Best Management Practices Consulting
Contributing Authors
Carmen Clarke, Neil Peltier, Arthur Schneiderman
Editors
Susan Elliott, Paige Leavitt
Designers
Connie Choate, Victoria Wirz
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a service of the American Productivity & Quality Center (APQC), and receive publications and other
benefits, call 800-776-9676 or 713-681-4020 or visit our Web site at www.apqc.org.
COPYRIGHT
2000 American Productivity & Quality Center, 123 North Post Oak Lane, Third Floor, Houston, Texas
77024-7797. 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 retrieval.
Additional copies of this report may be purchased from the APQC Order Department at
800-776-9676 (U.S.) or 713-681-4020. Quantity discounts are available.
ISBN 1-928593-30-5
STATEMENT OF PURPOSE
The purpose of publishing this report is to provide a reference point for and insight into the processes and
practices associated with certain issues. It should be used as an educational learning tool and is not a recipe
or step-by-step procedure to be copied or duplicated in any way. This report may not represent current organizational 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 APQC
Contents of Study Report

4
Sponsor and Partner Organizations

A listing of the sponsor organizations in this study, as well as
the best-practice (partner) organizations that were
benchmarked for their innovation and advancement in
performance measurement.
Executive Summary
A birds-eye view of the study, presenting the key findings
discovered and the methodology used throughout the course
of the study. The findings are explored in detail in
following sections.
13
Participant Highlights
A comparsion of the sponsor and partner groups across
several dimensions.
19
Key Findings
An in-depth look at the nine key findings of this study.
The findings are supported by quantitative data and
qualitative examples of practices employed by the
partner organizations.
67
Critical Success Factors

Additional important features of the partners balanced
scorecards.
75
Partner Organization Profiles

Background information on the partner organizations,
as well as their innovative performance measurement
practices.
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 Service
Organization
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 the
accounting profession began to acknowledge what was already well known to
operating managers: Traditional financial tools alone were inadequate for
prospectively managing contemporary organizations. This recognition was triggered
by the emerging popularity in the Western Hemisphere of Total Quality Management
and 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 represents
an attempt to more realistically link costs to the underlying realities of operating
processes and their usage of what economists call the factors of production: labor,
materials, capital, andmore recentlyknowledge. The balanced scorecard attempts
to integrate critical nonfinancial performance measures into the basic management
structure of the organization.
The balanced scorecard is a tool for quantitatively defining and managing the
most effective indicators of future strategic success. It can be used to rally organizational
effort around the few activities that are most vital to this success. It therefore is a
multifaceted tool that, in principle, can be used for communication, alignment,
improvement, and control.
To guide practitioners, the traditional balanced scorecard organizes measures into
four interrelated perspectives: financial, customer, internal, and learning and growth.
The theory behind it is that to achieve financial successthe ultimate purpose of the
organization, according to scorecard advocatesorganizations must satisfy their
customers. To satisfy their customers, they must optimize their internal value-creating
processes. To optimize these processes, organizations must learn and their employees
must grow in their individual capabilities. Although this has been the dominant
balanced scorecard structure during the 1990s, other logic paths have proved
increasingly useful for some organizations.
But as appealing and simple as it appears, implementation of the balanced scorecard has proved to be a challenge for most organizations. It is the quintessential example of the phrase Its simple, but not easy. Part of this difficulty is the scorecards reliance
on logical causal linkages to relate metrics to strategic objectives. This logic breaks
down if any link in the chain is weak or ill-defined. For example, some organizations
find that they have not effectively articulated their strategy in the first place, so they lack
S U M M A R Y
the foundation needed for a compelling story. Others find that complexity masks the
real drivers of success so that the resulting scorecard metrics are unconvincing.
A third difficulty lies in the scorecards dependence on changing the organizational
culture. Measurement affects behavior, for better or worse. Changing measurements
from a one-dimensional emphasis on financial performance to a more balanced emphasis on an appropriate mix of financial and nonfinancial measures has significant cultural implications, ranging from changes in individual compensation and career
advancement to increased dependence on teamwork. So, like any other culture change
initiative, it brings with it a set of challenges to successful implementation.
It takes a strong and convincing agent to overcome an organizations inertia or
resistance to change. In most Western organizations, the person at the top must have
the 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 in
which 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 the
result guide the entire organization in the chosen direction.
An organizations immune system ensures stability and resists wasteful, whimsical
changes. To break down this immune system, there must be a sense of urgency and a
convincing argument that the proposed solution will, in fact, mitigate the source of
that unwanted urgency. Internal success stories, resulting from pilot implementations and told by their champions, often provide that required proof. Systemization
of the new approach, training and education, and information support systems facilitate the approachs diffusion and maintenance throughout the organization. Reward
and recognition of successful proponents reinforce the desired change.
The best-practice partners observations reflect the challenges and concerns
associated with initiating the balanced scorecard and its set of associated performance
measurements. Of our three data sources survey results, site visit reports, and debrief
findings (discussed further in the methodology section of this executive summary)
the third provides a view of the best-practice organizations through the eyes of practitioners newly embarked on the journey. Immediately following each site visit, the
study team held a one- to two-hour debrief with the site visitors. We addressed the
observed major strengths and weaknesses and identified areas for potential follow-up
questions. We used a simplified form of KJ, or affinity diagram, analysis and voted to
prioritize our observations. A similar analysis, based on the collective conclusion from
the five site visits, revealed several interesting dichotomies.
For example, the greatest observed strength was sponsorship by a single senior
executive, usually the entity leader for the unit visited. On the other hand, it was
often unclear as to whether that sponsor was simply encouraging or really driving the
scorecards implementation. Also, to outsiders often not privy to confidential
information, the linkage between the scorecard measures and the business strategy
were sometimes unclear, except in the case where a structured matrix approach was used
that not only captured the causal relationship but also quantified its strength. At all sites
the 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 significant strategic impact.
Does all of this sound familiar? Every major change initiative in the past 50 years
has had the same basic agenda, though most organizations have fallen short of
completing theirs. However, the balanced scorecard provides the potential to unifiy the
organization around issues central to its survival. Those who are successful will win
leadership roles in the 21st century and transfer all of the associated benefits to their
stakeholders.
KEY FINDINGS
The key findings of this study were derived from primary research performed via
five site visits to best-practice organizations and detailed survey questionnaires completed
by 18 organizations. Based on the Measure What Matters benchmarking study scope,
findings are supported with data gathered from the 18 study participants (partners
and sponsors). The findings, which are organized into three sections, address the
following 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 organization understands the link between performance measures and business strategy.
2. Even the most advanced users of performance measurement do not have a fully integrated scorecard in use throughout the organization.
3. Simple structures for the balanced scorecard will yield the most effective performance
measurement 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 performance measurement information.
Section 3: Communicating and Driving Behaviors
8. Few organizations effectively use incentive compensation to manage individual

performance or contribution to scorecard goals.
9. Best-practice organizations enhance employee understanding of and support for
performance measurement through customized, ongoing communication.
S U M M A R Y
METHODOLOGY
Benchmarking is the process of identifying, understanding, and adapting outstanding practices from organizations anywhere in the world to help an organization
improve its performance. Companies participating in benchmarking activities report
breakthrough 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 models
by the European Center for Total Quality Management in 1995, the APQC consortium 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: Aligning
Performance 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 subject matter expert, study adviser, and representatives from APQC. This team
developed a project scope and the initial data collection tool to screen
potential best-practice companies.
The planning phase was concluded by conducting secondary research
to identify companies with notable processes in each of the key process
areas. Companies identified via secondary research, subject matter expert
suggestion, and sponsor organization nomination were contacted and
invited to complete a screening survey.
The results of the contact and screening process were presented to
study sponsors at the kickoff meeting on September 30, 1999. Based on
this information, sponsors chose the organizations they wanted to study
more in depth.
APQCs Benchmarking Model:

The Four-Phase Methodology
PLAN
ADAPT
COLLECT
ANALYZE
Phase 2: Collecting
The main objective of this phase was to focus on learning from best-practice partners by extracting rich, process-specific information concerning innovations in the
study focus areas. In August 1999 five of the partner organizations were invited to host
site visits during the study. Each accepted APQCs invitation and agreed to continue
the sharing process by hosting a four-hour site visit and completing the detailed
questionnaire. The other partners were asked to complete the detailed questionnaire
as well. During the site visits, key personnel were asked questions from the site visit
guide to share innovative and best-practice process information.
Phase 3: Analyzing and Reporting
In this phase, the APQC project team analyzed data collected from screening
surveys, detailed questionnaires, and site visits. The team identified critical success
factors and key enablers of outstanding performance measurement initiatives.
S U M M A R Y
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 produce
actionable change and solid decision making. Study key findings were presented to the
participants during the Knowledge Transfer Session (KTS), a one-and-a-half-day
meeting in Houston on January 27 and 28, 2000.
Phase 4: Adapting
Adaptation and improvement from the best practices identified throughout a

consortium study occur after the sponsor company representatives take the key findings back to their organizations. APQC staff members are available to help study
sponsors create action plans appropriate for their organizations based on the study
findings.
SUBJECT MATTER EXPERTISE
Arthur Schneiderman, Subject Matter Expert, Independent Consultant
Art Schneiderman is an independent process management consultant. He works

with 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 productivity improvement at Analog Devices Inc. (ADI). He was responsible for planning,
facilitating, and supporting ADIs worldwide implementation of Total Quality
Management. He was a member of ADIs Executive Council, facilitated the Quality
Steering Council (chaired by the CEO), and chaired the TQM Implementation
Council. Schneiderman was a senior examiner for the Malcolm Baldrige National
Quality Award and served on the Conference Boards U.S. Quality Council II. He is
a member of the editorial advisory board of the Journal of Strategic Performance
Measurement.
Before joining ADI, Schneiderman spent six years as a consultant with Bain &
Company, an international consulting firm specializing in strategic planning and
implementation. He holds a bachelors and a masters degree in mechanical
engineering from the Massachusetts Institute of Technology (MIT) and masters
degree 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) in

Truro, Nova Scotia, Canada. Martin has 16 years of experience as one of Canadas
leading marketing specialists in the oil industry. For the past 10 years he has worked
within business, government, and education to promote corporate performance best
practices. From 1994 to 1997 he was on special assignment from the Canadian
government to develop and assist in the implementation of a national and Atlantic
Canadian strategic plan.
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M E A S U R E W HAT M AT T E R S
Participant Highlights
13
H I G H L I G H T S
Introduction
hen assessing performance measurement practices across organizations, it is

important to understand the differences in organizational structure, size, and
industry that might influence these practices. This section introduces our study
participants 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 studys
detailed questionnaire because they do not have a performance measurement system
or their systems of performance measurement are still in the early stages of development.
FIGURE 1: Industries Represented by Participants
Industry
Sponsors
Chemicals
Partners
Solvay Polymers
Diversified foods
Sara Lee Corporation

Trebor Bassett Ltd.
Financial services and insurance
LifeWay Christian Resources*

USAA
Lutheran Brotherhood
Merrill Lynch Credit Corporation
Blue Cross Blue Shield of Michigan
CIGNA*
Manufacturing
Case New Holland

General Motors
Ricoh*
Transportation
United States Postal Service
Consumer products
Eastman Kodak
Caterpillar
The Boeing Company
3M
Public service
City of Charlotte, North Carolina
Telecommunication
Nortel Networks
GTE
Utilities
PP&L Resources Inc.

Oklahoma Gas and Electric*
New York Power Authority
* did not answer the detailed questionnaire
14
H I G H L I G H T S
As indicated in Figure 2, most of the study participants

have 9,999 or fewer employees. Only one sponsor company exceeded the 100,000-employees level.
Respondents were asked to answer the questionnaire
from one perspective for their company (i.e., corporate,
divisional, and business unit). The most frequent response
was from the perspective of the entire organization. The second-most-common response was from the business unit
perspective (five responses). For these respondents, the
average revenue was $5.17 billion, with a maximum and
minimum 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 in
this calculation.
Total Number of Employees

in the Organization
100,000+
0
50,00099,999 0
10,00049,999
1,0009,999
0
100999
0
Number of Organizations
Sponsors (n=8)
SCORECARD CREATIONS
Partners (n=8)
The balanced scorecard approach to performance meaFigure 2

surement focuses on incorporating nonfinancial and financial measures to create a more accurate picture of an
organizations performance. Throughout our site visits we
found a variety of reasons that led organizations to change
from their former measurement systems. Some of the results were found at more
than one organization. For example, Nortel Networks Canadian Customer Service
(CCS) and Caterpillar Wheel Loader and Excavator Division (WLED) both initiated the scorecard as a result of increased competition in the marketplace. Boeing
Commercial Airplane Customer Support Organization (CACSO) needed to better
support its parent organizations with its products and services. At GTE, deregulation
created a new business environment that prompted the need for new strategies. GTE
chose 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 their
efficiency by improving their end-to-end processes.
FIGURE 3: Revenue vs. Spending on Measurement

Total Annual Revenue of Organization
Average number of FTEs

for measurement
Average annual spending

on measurement
Minimum:
$83.7 Million
$50,000
Maximum:
$63 Billion
15
$500,000
Mean:
$9.17 Billion
$300,000
15
H I G H L I G H T S
CHANGES TO THE SCORECARD
Degree of Change in Measurement

System in Past Two Years
0%
Completely
22%
44%
33%
Significantly
56%
45%
Slightly
0
20
40
60
80
100
Percentage
Sponsors (n=9)
Partners (n=9)
Figure 4
Performance measurement has not been a one-time

effort at any of the companies in this study. Both partners and sponsors have continued to develop and revise
their performance measurement systems (Figure 4).
They recognize the value of performance measurement
and the benefits that a well-balanced, effective system
will yield.
Sponsors indicated that they have made less-extensive
changes to their performance measurement systems in
the past two years than have partners. The most significant changes for the partners and sponsors can be seen
in Figure 5. The table represents the percentages of partners and sponsors that changed a particular dimension
of their performance measurement system.
Over the past two years, most partners and sponsors
have changed the individual measures and the goals set for
those measures.
RESULTS OF PERFORMANCE MEASUREMENT
Changes in the
Performance Measurement
System in Past Two Years
56%
Categories of measures
33%
89%
Individual measures
67%
67%
78%
Goals set for each measure

22%
22%
Time frame for goals

Ownership within the
organization
According to the survey results, all of the organizations

have seen positive changes in their organizational performance due to their balanced scorecard approach. All
responding partners and sponsors credit the scorecard
with focusing their organizations attention on the issues
that were most critical to their success. Of the partners
responding to the survey, 63 percent reported that the
scorecard has helped them to improve productivity. One
organization even tracked its return on investment for
the balanced scorecard implementation and found that its
savings in the first year alone were enough to pay for all of
the costs associated with setting up the system.
11%
33%
0
20
40
60
80
100
Percentage
Sponsors (n=9)
Partners (n=9)
Figure 5
16
Key Findings
21
Section One: Findings 1 and 2
37
Section Two: Findings 47
55
Section Three: Findings 8 and 9
19
Section One
Designing the Performance

Measurement System
21
KEY FINDINGS
Introduction
alanced scorecard literature stresses the criticality of creating clear causal linkages between scorecard metrics and the organizations strategic objectives. This
exercise, however, is more easily described than done. If the objective is to provide a
compelling story to all employees, then that story should be equally compelling to a
knowledgeable outsider, since the vast majority of employees are usually nave about
their organizations value-creating process, strategy, and tactics.
Two factors confound the job of linking metrics to strategy: 1) the potential links
vary significantly in terms of their causal impact, and 2) it is difficult to uncover the
real drivers because they are often hidden by ever-increasing complexity. Many organizations are beginning to recognize the need to understand their system of interacting internal processes as an intermediate step in identifying the true drivers of
stakeholder satisfaction. They quickly recognize that these drivers reside throughout
the organization, not just within a business unit or a single organizational function, so
that real strategic impact requires corporatewide (both horizontal and vertical) scorecard deployment.
To deal with these issues, leading organizations are developing formal quantitative
processes for identifying their internal and external strategic levers. They recognize the
dynamic nature of this effort and the need for continuous refinement of their performance measurements and balanced scorecard.
The answer to one recurring issuethe optimum number of scorecard metrics
still remains elusive. Have too few, and some critical success factors will not receive the
required attention. Have too many, and the organizations management capacity is
quickly overwhelmed. A rule of thumb, based on other management analogies,
appears to be five to seven as the maximum number of scorecard metrics that an
individual scorecard owner can manage. Erring on the low side may be a prudent
way to start.
The bottom line is that most successful organizations start small with their
performance measurement initiatives. Their initial objectives are to learn the practice
22
KEY FINDINGS
of performance measurement and to develop organizationally relevant success stories.

Employing the keep it simple principle wherever possible helps minimize
organizational confusion and pushback. Best-practice organizations frequently
examine the scorecard implementation process and establish their own manual of
problem areas, obstacles, and appropriate countermeasures. These organizations add
complexity only when its needed to move to the next level of scorecard deployment.
Successful scorecard implementers use initial successes as stories to sell the balanced
scorecard approach to the rest of the organization.
23
KEY FINDINGS
Finding 1:
Best-practice organizations take a simple
approach to ensure that the organization
understands the link between performance
measures and business strategy.
hat are the most important things for us to focus on? That single question
can be anticipated in any scorecard implementation. In some organizations, that question is readily verbalized. In others, it hides in the background, but its
still there. Best-practice organizations answer that question up front, in a logical and
convincing fashion. The extent to which the resulting story makes sense determines
the degree of organizational buy-in to the often-stretched goals associated with the
scorecard.
That buy-in must occur not only for employees but also for the other stakeholders in the organization: customers, suppliers, communities, and stockholders. The
common bond among these sometimes conflicting constituencies is the achievement
of the organizations strategic objectives. Best-practice organizations use a process
that will ensure the link between strategic objectives and the performance measurement
system is both clear and compelling to all.
Currently, there is no single accepted model for developing this scorecard story
and for illustrating the link between measures and strategic objectives. Some organizations first identify their core business processes and then develop the appropriate metrics for these processes. Others start with their existing set of performance measures
and map them against their strategic initiatives to eliminate unrelated metrics and to
identify gaps in their current metrics set. Often, index systems are developed for flagging 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 maintain
highly visible links between the indices and their underlying metrics.
Best-practice organizations continually review and revise their scorecards with
one eye on their rapidly changing environment and the other on ever-changing goals
and objectives. Maintaining this critical balance is often more art than science, yet it
is essential to establish the credibility of the performance measurement system throughout the organization.
24
KEY FINDINGS
The majority of our study participants maintain a highly visible and comprehensible
approach for the development and deployment of their performance measurement
systems. Nortel Networks matrix-based approach for prioritizing metrics and
identifying gaps, detailed on page 27, is particularly noteworthy.
PRIORITIZING PROCESSES
As mentioned previously, an organization will look to the performance measures

implementation team for answers to the question What are the most important
things for us to focus on? Several study participants have identified systematic, logical, and convincing approaches for identifying a few vital performance measures.
Many of these approaches rely on process-orientation and traditional quality improvement techniques.
3M:
In the early 1990s, 3M established Q90s, a total quality initiative that initiated
the corporations uncompromising commitment to customer satisfaction. The
autonomous divisions at 3M identified strengths and areas for improvement
according to the Malcolm Baldrige National Quality Award criteriaand then
developed 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 established
to meet goals. Division leaders recognized how the National Quality Award process
mirrored their own, so they systematically assessed and improved using the Baldrige
criteria.
Boeing CACSO:
Boeing CACSO has embraced the Process Management Improvement

Methodology (PMIM) to increase its focus on processes within the organization.
Each functional group within Boeing CACSO participated in a four-day off-site
meeting, during which the group defined its processes, captured the critical elements,
and mapped leverage points. This analysis enabled the group to understand the
requirements and issues within each functional group. The PMIM and related
process management tools will enable leaders to confer and make decisions about
processes 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.
25
KEY FINDINGS
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 process
by determining the supplier and the customer. WLED determined that it had approximately 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 profit
and loss of the plant.
To determine the key measures and identify opportunities to improve each critical process, Caterpillar used a tool called the Process Analysis Technique (PAT). Each
PAT team consisted of two people; the first was the process owner, the second an
internal consultant. The consultant and the process owner were pulled from their
current jobs to work solely on the PAT. The PAT was actually simple; the
know-nothing consultant could ask questions about the process and provide a fresh
perspective, while the process owner understood the current process and often found
ways to improve it. Those two people would interview other employees who used the
process daily to evaluate each step in the process so they could reengineer it by
removing all nonvalue-adding activities.
IDENTIFYING MEASURES
When asked who is responsible for identifying measures on the scorecard, nearly
all responding organizations reported that their functional management was responsible (Figure 6, page 27). A higher percentage of partners than sponsors tended to
rely on cross-functional teams and quality groups.
Another facet of identifying measures is goal setting. Sponsors and partners
responded very differently concerning the goal-setting process. Most partners
(67 percent) tend to favor the catch-ball method of goal setting, which combines the
top-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 formulated 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, and
5. 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?
26
KEY FINDINGS
4. Is HR creating an environment that encourages

integration 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 operation/process measures and desired outcomes that would
provide the data needed to answer the 17 questions.
These measures and desired outcomes are organized into
four perspectives (strategic, customer, operational, and
financial) to form the GTE HR balanced scorecard.
Party Responsible for Identifying

Measures on the Scorecard
78%
Business/functional
management
89%
33%
Cross-functional team
67%
67%
Strategic planning group
44%
33%
Quality group
11%
44%
Financial group
33%
11%
22%
Other
0
20
40
60
80
100
Percentage
Sponsors (n=9)
Partners (n=9)
Figure 6
Nortel Networks CCS:
Nortel Networks used a matrix to compare each of its top 33 metrics to each
strategic objective. Each metric was given a score (-9 to +9) that indicates that metrics correlation to each objective. Negative numbers imply an inverse relationship; the
greater the absolute value of the number, the stronger the relationship. Each metric
was given a total score by taking the sum of the correlation numbers for each strategic
objective. These scores were then used to determine the 16 most important metrics.
As a result, the balanced scorecard is aligned with Nortel Networks strategic
objectives, a list of metrics that strongly correlates with each strategic objective, and an
operational scorecard of those metrics not on the strategic scorecard that would help
Nortel Networks CCS to make data-driven business decisions.
REVISIONS
Most of the partners and sponsors review their performance measurement systems
annually (Figure 7, page 28). Partner organizations also review their systems whenever
there is a change in strategy, competitive action, or management. One organization
27
KEY FINDINGS
Timing for Revisions to Performance

Measurement System
89%
78%
Annually
Semi-annually 0%
11%
When there is a change in 0%

management
22%
In response to competitive 0%
action
33%
11%
Whenever strategy changes
67%
0
20
40
60
80
Percentage
Sponsors (n=9)
100
conducted a full review of its performance measurement

system twice a year. A sponsor organization indicated
that it reviews its measurement system whenever its organizational strategy changes.
3M:
3M refines its performance measures system annually

after the 10-step corporate strategic planning process is
complete. Related operational metrics are identified in
the fall during the budgeting process. In addition to the
annual alignment, the system is refined any time a competitor takes a significant strategic action, as well as any
time there is a change in management structure at 3M.
The process for reviewing and revising the performance
measurement system is at the discretion of each of the
divisions. As long as they produce corporatewide measures mandated by executives, the divisions can revise
their measurements when necessary. On average, measurements are revised two or three times a year.
Partners (n=9)
Boeing CACSO:
Figure 7
Boeing CACSOs leadership reviews the company

strategy annually in light of market performance and
customer and competitor data. Organizational development experts facilitate discussion of performance measures and any necessary revision resulting from changes in strategy. Boeing CACSO also evaluates its performance
measurement system on an ongoing basis. As new strategic directions emerge, the vice
president of CACSO and/or a strategy development consultant lead discussions to
identify how to incorporate or reflect the new strategy in the measures.
Nortel Networks CCS has a documented process to review its performance

measurement system. The process is designed to evaluate the effectiveness and usefulness of each CCS strategic metric and to ensure the balanced scorecard is aligned with
the strategic plan. Six business operating managers (BOMs) are surveyed concerning
the effectiveness and usefulness of each metric.
To further determine its effectiveness, each metric is weighted on a scale from
one 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 goals
by asking the question How effectively does this measure represent the goal? This
gives each metric a numerical value.
To determine the usefulness of each metric, respondents are asked to indicate
how often they use a particular measure to make decisions that affect the business.
28
KEY FINDINGS
They are given the choices of monthly, quarterly, and yearly. Each of these choices has
a numerical value associated with it, which is then summed with the measures
effectiveness score. If the measure is determined to be both useful and effective, the
metric is kept on the scorecard. If it is deficient in either area, the measure is either
discarded or amended.
29
KEY FINDINGS
Finding 2:
Even the most advanced users of performance
measurement do not have a fully integrated
scorecard in use throughout the organization.
here are two opposite scorecard deployment strategies. One starts at the top
with an overall corporate scorecard and deploys it down and across the organization so that all business units, functions, and levels have linked scorecards. Another
approach takes a less aggressive approach. It starts within a business unit and/or a
function and, through the achievement of dramatic success and a cadre of champions,
creates a demand for the scorecard approach throughout the entire organization. The
first model represents a push and the second a pull deployment strategy.
There is much debate over which of these strategies achieves the most successful
corporatewide deployment. The answer depends on the organizations culture. At
one extreme, we have what has been termed uni-minded organizations, where all
employees line up behind the person at the top and simply follow orders (i.e., military
and the prototypical Japanese organizations). At the other extreme lies the increasingly
common Western, multi-minded organization, where a directive from the top is usually met with a why? rather than the desired how? A push deployment strategy is
more likely to work in a uni-minded organization than a multi-minded one, where many
employees 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 strategy
and are beginning to stimulate interest in performance measurement throughout
their organizations. Almost all study participants use performance measurement at most
levels of the organization. However, the measures may not be integrated into one
corporatewide balanced scorecard (Figure 8).
One of the keys to the balanced scorecard is to use the tool in an integrated fashion
at all levels of the organization. Although none of the participants were able to roll up
measures from the individual level all the way to the corporate level, they were all
attempting to do so. The ability to use consistent measures throughout an organization
is the first step to linking the performance measurement system. At each organizational
level, more partners than sponsors responded that they could aggregate their measures.
30
KEY FINDINGS
Boeing CACSO:
How Organizational-Level
The Boeing companywide value scorecard reflects
Metrics Are Rolled Up
top-level measures and goals for the entire organization.
The Flight Deck, CACSOs balanced scorecard, supports
11%
Employee rolled up to
companywide goals and measures and reflects overall
department
44%
performance measures for the Commercial Airplane
44%
Department rolled up to
Customer Support Organization. The leaders of
business unit
CACSOs subunits soon will identify leading measures that
feed into and support the Flight Deck. Within one year,
33%
Business unit rolled up to
CACSO plans to develop scorecards for the entire
division
67%
CACSO organization, down to the work-group level.
56%
Division rolled up to
Many Boeing operating units outside of CACSO
corporate
67%
have recognized the value of the performance measure0
20
40
60
80
ment system, especially in light of the introduction of
the Boeing companywide value scorecard. Boeing
Percentage
recognizes the need to develop similar performance
Sponsors (n=9)
measurement tools across the organization. As pockets
Partners (n=9)
of performance measurement emerge at Boeing, the
Figure 8
organization will begin to identify common performance
measurement frameworks, tools, and approaches for the
entire organization.
Boeing CACSO reports performance levels for the key
measures using the BSC performance matrix. The BSC
performance matrix displays current-month and threemonth-running average performance levels relative to baseline for each key measure. Color-coding (red, yellow, green, blue) enables a quick visual assessment of
performance.
All measures within the CACSO flight deck/performance matrix system roll up,
arithmetically and/or logically, to represent overall performance across CACSO. In
addition, some CACSO measures, such as revenue and operating margins, roll up to
the Boeing-wide value scorecard. Lower-level measures, which include leading indicators, differ from top-level measures, which often represent outcomes. For example, Boeings top measures in on-time delivery, may reflect that the organization
delivered 600-plus airplanes on time this year. Measures that support this goal at
lower levels in the organization might include the on-time delivery of engineering designs
to manufacturing unit.
89%
100
Caterpillar WLED:
Caterpillar has a fully integrated measurement system. The corporate office identifies the critical success factors (CSFs) that are broad strategies that shape the future
of Caterpillar. Bold goals are then developed by each of the profit centers in support
of those critical success factors. Within the profit center, each person and team has a
set of SMART goals. SMART goals are Specific, Measurable, Action-oriented, Realistic,
31
KEY FINDINGS
and Time-and-resource-constrained objectives that are designed to support the bold

goals and CSFs.
There are several links among the different types of goals. Each year WLED
determines its short-term objectives that roll into its business plan and its incentive
compensation plan (ICP). The ICP links a portion of employee pay to the performance
of WLED as a whole. Individual and team SMART goals are assigned based on the
business plan. The bold goals are the link between the SMART goals, the short-term
objectives, and the critical success factors.
Nortel Networks Canadian Customer Service performance measurement system

includes a strategic balanced scorecard and an operational scorecard. The CCS
strategic balanced scorecard is used only by the CCS organization but includes data from
across the Nortel Networks organization. Nortel Networks is planning to expand
the use of the scorecard to other customer service divisions worldwide.
Additionally, within the CCS there are operational scorecards maintained by
several departments. These scorecards contain measures that reflect the day-to-day
operations of the unit but are not strategic in nature, nor do they represent a balanced
set of measures. Each metric has a measurable goal associated with it.
The operational scorecards and the strategic scorecards have many links. Nortel
Networks plans to create a balanced set of measures for each of the operational
scorecards within CCS.
32
KEY FINDINGS
Finding 3:
Simple structures for the balanced
scorecard will yield the most effective
performance measurement systems.
o best convey their performance through performance measures, successful organizations organize their metrics into logical groupings. The most popular set
of scorecard perspectives, for example, flows from financial to customer to internal to
learning and growth. In addition, many organizations use a visual analogy or logo, such
as an aircrafts flight deck or instrument panel, to communicate performance. Others
organize 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 strategic
impact 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 the
strategic objectives. But weighting factors are difficult to determine and greatly
complicate communication of the scorecards rationale. These issues have prompted
several study participants to delay the use of weighting factors until later in their
scorecard deployment.
In structuring the performance measurement system and in depicting results,
study participants have found that scorecard users most appreciate simplicity. Most
sponsors and partners chose the five categories in Figure 9 (page 34) as the primary types
of measures in their performance measurement system. These categories conform to
the Sears model, which links employee satisfaction to customer satisfaction to financial success. Internal business processes are often measured so companies can improve
their products, processes, or services.
One of the keys to the balanced scorecard is to only focus on the measurements that
drive your current business. Subject matter expert Art Schneiderman contests that managing performance measurement is analogous to juggling. Figure 10 (page 34) charts
the number of catches per ball compared with the number of balls being juggled. As
with 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 seven
key measures. Sponsor and partner organizations track nearly the same number of
33
KEY FINDINGS
Categories That Best Describe

the Primary Types of Measures
on Organizational Scorecards
88%
100%
Customer satisfaction
67%
78%
Quality
measures at the corporate, business unit, and departmental levels (Figure 11). Partner organizations track only
four to six measures for work teams and employees,
while sponsors track nine or 10.
Seventy-eight percent of study participants favor a
non-weighted system for performance measurement.
These systems are less complex and easier for employees
to understand and use.
Boeing CACSO:
100%
100%
Financial
56%
Internal business
processes
78%
78%
78%
Employee satisfaction
0
20
40
60
80
100
Percentage
Sponsors (n=9)
Partners (n=9)
Figure 9
CACSOs leaders, and specifically the vice president

and general manager, envision a simplified version of the
textbook balanced scorecard method. CACSOs flight deck
includes three perspectives (modeled after Sears) linking employee satisfaction to customer satisfaction to
financial performance. The customer perspective at
CACSO includes traditional customer satisfactionfocused measures as well as internal process measures.
CACSOs flight deck includes a performance index
for each of the three perspectives: financial, customer,
and people. Each of these indices is weighted as 33.3
percent of the total scorecard. The indices are composite scores, representing about 15 top-level measures for
CACSO.
FIGURE 10: Juggling Records
100
90
80
Catches per ball
70
60
50
40
30
20
10
0
0
Source: Arthur Schneiderman
34
10
11
12
Number of balls
KEY FINDINGS
A critical success factor for CACSO was the development of tools and methods to populate and display
the balanced scorecard. The flight deck, the BSC performance matrix, the BSC measure definition template,
and other tools were created using simple spreadsheets.
The accessibility and portability of these simple frameworks ensure that any group can access and use the tools
of performance measurement.
Average Number and Type of

Measures Tracked on Scorecards
10
Corporate
10
11
Division
8
Caterpillar WLED:
Caterpillar WLED does not weight its goals unevenly

on paper. Caterpillar emphasizes some of the bold goals
over others by using the incentive compensation system
as well as having more SMART goals tied to particular bold
goals. By tying the measures that Caterpillar considers
more important to the compensation system, the company believes those measures will be more important to
employees. Additionally, when supervisors create
SMART goals for employees during the performance
development program (PDP) process, they will create
more SMART goals for employees that are aligned with
a particular bold goal. By increasing the number of these
goals, supervisors direct the employees efforts to the
goals management considers most important.
10
Business unit
11
9
Department
10
6
Project or
work teams
10
4
Employees
9
0
12
Number of Measures
Sponsors (n=9)
Partners (n=9)
Figure 11
Nortel Networks CCS currently has 16 measures on the strategic scorecard equally
weighted. The measures reflect CCS strategy and represent five focus areas: employee
performance, internal processes, customers, market share, and finance. All of the
measures on the scorecard support their strategic objectives, and all of those are
considered equal. The organization can easily weight its measures differently using the
PB Views commercial balanced scorecard software.
35
Section Two
Implementing and Operating

the Performance Measurement System
37
KEY FINDINGS
Introduction
ccording to the famous architect Ludwig Mies van der Rohe, God is in the
details. To Admiral Hyman Rickover, the father of the U.S. nuclear navy, it
was The devil is in the details. Either way, getting the details right is the only way
to win at implementing the balanced scorecard. Recognizing the magnitude of the organizational change associated with successful scorecard implementation quickly draws
us to the critical role top management plays. Executive lip service to performance
measurement is insufficient. Remember the popular quip about the roles of the
chicken and the pig in creating bacon and eggs: The chicken was involved, but the pig
was committed.
Although this distinction is extreme, top managements real and visible
commitment to the creation and management of the balanced scorecard process is a
primary requisite for effective and timely implementation. Delegation of the leadership
responsibilities of this job are impossible. Top managements ultimate personal
responsibility as captains of the ship and behavioral role models to the organization
will reinforce the importance of the scorecard and its priority over other competing
activities.
However, top managers cannot and should not do the job by themselves. Each
scorecard metric must be skillfully, perhaps even artfully, created and enthusiastically
owned by the person or team ultimately responsible for the achievement of the goal.
A dedicated support group, well-versed in both performance measurement and
facilitation tools and techniques, must play a critical role. The combination of top-down
commitment and direction and qualified resources enables and motivates those who
will ultimately achieve the goals to provide the bottom-up knowledge needed for the
creation of realistic scorecards and their associated goals.
These experts/facilitators often can be found within the existing organizational
structure. Strategic planning groups can be a natural match for the tasks associated with
scorecard implementation. Representatives from finance and human resources can bring
the skills required to address such issues as metrics validation and employee motivation.
38
KEY FINDINGS
Representatives from operations can ensure that metrics definitions are meaningful and
related to real business objectives. Together, these experts constitute a core team to support top managements initiative.
Fortunately, many new information technology tools are available to aid the
performance measurement implementation effort. With the increasing use of
corporatewide access to data via intranets and other tools, the tasks of data collection
and dissemination can be effectively decentralized. Specialized software programs
can deploy the balanced scorecard throughout the organization and permit the creation
of customized reports for their timely management. Reports and displays using graphics and color-coding help managers quickly focus on areas requiring their attention.
Some systems even allow statistical analysis of performance results, enabling the user
to separate significant results from ever-present noise. But many note that manual preautomation planning efforts have significant payoff, given the substantial cost associated
with these powerful but often inflexible solutions.
39
KEY FINDINGS
Finding 4:
Executives must be actively involved
in leading the implementation effort.
he number of action items generated by a few top-level initiatives escalates at

the level of process execution. This initiative proliferation, compounded by the
demands of daily tasks, generally means that we have more potential tasks than available time. These tasks are prioritized based on perceived importance, so top management should rightfully drive this perception. Without a focused effort, we will
likely complete the task in form, not substance, and fail to generate the desired results.
Executives in best-practice organizations recognize this critical need and constantly 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 the
behavior 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 the
committed results. These leaders elevate the importance of nonfinancial measures
by demanding data integrity. They require the use of scorecard results in every
employees annual performance review and annual plan. In the front-end planning
process, leaders require top management to approve all goals and ensure that the
scorecard goals are matched to the available resources. This ensures that goal achievement is a matter of thoughtful execution rather than unsustainable heroics. By
tightly integrating performance measurement into all appropriate legacy management
systems, successful organizations link this new approach to the organizations traditional
structure.
Over time, as performance measurement integrates into the organizations culture,
the role of the executive leader often shifts from driving the scorecard implementation
to nurturing its refinement. Several study participants struggled with the nature of the
executive involvement. Although all scorecard initiatives had a top-management
sponsor and at least one enthusiastic middle-management proponent, the robustness
40
KEY FINDINGS
of the effort remained unclear. Would the initiative survive the departure of one of these
key individuals?
Boeing CACSO:
The vice president and general manager of the Commercial Airplane Customer
Support Organization champions the flight deck, CACSOs balanced scorecard.
Because he has a process management/quality background, he is accustomed to
approaching the business from a process perspective. He encourages CACSOs leaders to follow this approach as well. His leadership team consists of all of CACSOs functional and support group leaders. This leadership team drives the development and
improvement of the performance measurement system by communicating to the
organization about measures and results, by modeling the use of the measures, and by
reinforcing the importance of performance measurement. The vice president and
general manager launched the flight deck at an all-leaders meeting and continue to reinforce the message of performance measurement through open forums with all levels
of employees.
Senior executive support of the performance measurement initiative was key to the
successful rollout of GTEs scorecard. The executive vice president of HR and
departmental vice presidents played a major role in positioning the performance
measurement initiative as a learning experience and a constructive, positive process of
improvement.
The executive vice president of HR served as senior executive sponsor of the HR
balanced scorecard implementation initiative. He actively influenced others to support
the initiative and then held them accountable for performance. He effectively conveyed that the intent of the performance measurement initiative is to develop highly
effective processes in HR, rather than to identify poor performers. The executive
vice president of HR also modeled a commitment to deliver the best possible service to GTE employees, the customers of HR.
The vice president of Nortel Networks Canadian Customer Service organization

initiated the balanced scorecard approach. He envisioned a centralized business
performance measurement team, headed by a hands-on manager. With his enthusiasm
and sponsorship, the balanced scorecard and the CCS approach to implementing
this tool may be used in all of Nortel Networks customer service divisions in
North America.
41
KEY FINDINGS
Finding 5:
The organization must dedicate top-notch
resources to the implementation and
operation of the performance
measurement system.
manager would never select a random group of available personnel to design a

new financial accounting system or to participate in any other strategic initiative.
Similarly, successful scorecard implementers must create a core team of carefully
selected individuals to work hand-in-hand with the executive leadership.
The members of the core team should bring with them individual skills in areas such
as strategic planning, process management, human resources, and information
technology. The most important characteristic is the ability to enroll line managers in
the scorecard process and to constantly fuel enthusiasm through the difficult days of
initial implementation. This effort requires a significant time commitment from the
core team members. This long-term commitment means that other provisions must
be made for the work they normally would be doing. Effective performance
measurement development cannot be expected as an added task to an already
full-time position. Over time, the role of core team members changes from
designer/promoter to quality assurance/trainer. Usually, appropriate team membership changes with this role evolution.
Nearly all of the study partners made significant investments of people and money
in their scorecard implementations. The average resource-retraction level was four
full-time equivalents, with the expectation that the pilot implementations would take
two to three years.
One of the keys to a successful scorecard is empowerment. The more people able
to 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 from
employees 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 that
executives use the balanced scorecard. Seventy-eight percent of sponsors and partners
report that directors and managers use the balanced scorecard, while fewer than half
of professionals use the balanced scorecard. Forty-four percent of partners employees
are empowered to use the scorecard, while only 11 percent of sponsors employees
use it.
42
KEY FINDINGS
Educating employees about how to use performance

measurements is critical to empower them to make decisions based on the scorecard. Among those organizations responding to a related question on the data
collection tool, the most popular method of training
employees was an internal training class, followed by
direct coaching from managers (Figure 13).
Many of the organizations responding to the survey
experienced challenges in defining measures, capturing
data, and addressing employees anxiety about accountability (Figure 14, page 44). These challenges provide a
good framework to identify the skills required on the
implementation team. People with skills in consensus
building can help facilitate discussions when creating a
common set of definitions for the organization. People
with technical skills in data capture can design a system
to track those measures that are critical to the business.
Perhaps the most vital person on an implementation
team is the one who communicates the importance and
power of the balanced scorecard and eases anxiety about
measurement accountability.
Parties Who Interpret Data

and Use Them for Decision Making
89%
89%
Executives
Directors
78%
78%
Managers
78%
78%
44%
44%
Professionals
11%
Employees
44%
0
20
40
60
80
100
Percentage
Sponsors (n=9)
Partners (n=9)
Boeing CACSO:
Significant personnel resources are required to

implement Boeing CACSOs performance measurement
system. The vice president and general managers leadership team chartered three types of balanced scorecard
teams to support deployment of performance measurement. Clearly defining the roles and responsibilities of
the team and creating ownership among team members
was key to the implementation effort.
A development and deployment (D&D) team, consisting of appointees from middle and lower levels in the
organization, formed the core of experts who further
refined the system and continue to provide first-line
data from within the operating or business units. The
D&D team members are leaders within their organizations. They represent all operational and support
processes within the organization.
Three balanced scorecard indicator champion teams
(finance, customer, and people) ensure that measures
from each of the scorecard perspectives are integrated
Figure 12
Has a Formal Training

Course to Teach Employees
to Gather and Interpret Data
22%
44%
0
20
40
60
80
100
Percentage
Sponsors (n=9)
Partners (n=9)
Figure 13
43
KEY FINDINGS
and aligned throughout the customer support

organization.
Finally, the balanced scorecard process teams represent all four operational processes and five support
processes. These team members work within their
processes to provide ongoing expertise, data collection,
33%
Anxiety about measurement
accountability
44%
and analysis support to the D&D team. The strategy
group continues to support the implementation of
33%
Capturing data
process management and performance measurement by
44%
providing leadership and the D&D team with tools,
78%
training, and coaching. The strategy group aims to
Defining measures
56%
provide tools and support in anticipation of needs so
0
20
40
60
80
100
that implementation proceeds as smoothly and quickly
as possible.
Percentage
The process teams collect and analyze performance
Sponsors (n=9)
data, set targets, and combine measures to report at a
Partners (n=9)
higher level. The BSC indicator teams coordinate data
Figure 14
collection and display work to ensure consistency of
measures deployment. The D&D team ensures alignment
of measures to strategy and monitors and guides the
process and indicator teams. The strategy group continues to play a key role in enabling the operation of the
performance measurement system by providing tools,
facilitating meetings, and driving progress. By meeting with leadership as well as
with the D&D team, the strategy group can identify disconnects and coach the
process from both ends. Now that the top-level implementation at CACSO is well
under way, the strategy group implements performance measurement tools at lower
levels in the organization. The strategy group also acts as a consultant to the D&D and
process teams.
Biggest Challenges Faced in

Initiating the Performance
Measurement System
Caterpillar WLED:
WLEDs product managers were ultimatly responsible for determining the measures that were used to run their business. The company enlisted the help of external
consultants as well as Caterpillars business resources group, which aided the product
manager in determining measuresan evolutionary processand reporting and
analyzing them. The business resources group is a shared service organization that is
in charge of the collection and analysis of some performance measurement data that
it reports to the department heads.
GTE HRs newly formed planning, measurement, and analysis team includes a director plus three employees who have been dedicated to the team full time since the
beginning of the HR balanced scorecard initiative. The HR measurement core team
44
KEY FINDINGS
includes eight functional subject matter experts representing the various functions
within HR and the five GTE strategic business units. These core team members
were identified the critical measures and communicated them back to their business
units. During the development of the scorecard, each team member invested
approximately 400 hours in the effort. In addition, GTE HR enlisted the aid of
consultants from Hewitt Associates for a year-long development and implementation
initiative. These consultants are not actively engaged in the ongoing efforts.
Each core team member continues to devote about one week every quarter to
sustaining the balanced scorecard system. These core team members coordinate the
collection, validation, and submission of performance measurement data for their
business units, in addition to performing their full-time roles within the business
units. An extended team in the HR technology and data group supports the
performance 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 planning
sessions with the senior managers, incorporating the strategic review into quarterly
business performance reviews, and collaborating with the business performance team
to ensure alignment between the balanced scorecard and the strategic objectives of
the CCS.
The BPM team was responsible for the creation and rollout of a balanced
scorecard to the CCS, including the gathering, trending, and reporting of all
performance data. It also established a centralized reporting function. The BPM
team is responsible for the ongoing collection and analysis of the performance
measurement data.
The CCS BPM team relies on contacts within other business units to support
the performance measures system. Each metric has a data provider and a regional
data owner. Regional directors are ultimately responsible for the data submitted by their
particular region.
45
KEY FINDINGS
Finding 6:
Meaningful and effective performance
measurement begins with strategic
planning and is linked to the periodic
planning process.
here does the scorecard process fit in the traditional organizational structure?
Many organizations view it as a natural extension of the strategic planning
process and necessary vehicle for communicating their strategies and making them more
tangible. Others link it more closely to their quality improvement efforts. Still
others view it as an extension of their financial function. Wherever its home base,
most organizations prefer to position performance measurement as an extension of
current practice rather than as an entirely new function.
No matter its location in the existing organizational structure, the fact that
performance measurement picks up where strategic planning ends is formally recognized in best-practice organizations. During strategic planning, the organization identifies the strategies and initiatives it will focus on in the future. This exercise
leads to the development of performance measures that will gauge the organizations
success related to these strategies. As depicted in Figure 15 (page 47), the development
of the performance measures involves strategic planning professionals as well as
quality, financial, and business unit representatives.
Several study participants link their balanced scorecard implementation to their
strategic planning organization and/or process. All responding participants indicated
that performance measures are identified during the strategic planning process. Some
participants reported additional processes, as indicated in Figure 16 (page 47).
3M:
The 3M strategic planning process aligns and drives virtually every company
action. 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.
46
KEY FINDINGS
Each divisions steering committee is responsible for

administering this process and ensuring that each process
and measurement is aligned with corporate strategy.
The strategic plan includes high-level plans for 10
years, with detailed information covering the first five
years. Each year, 3Ms dental products division (DPD)
develops specific strategies, goals, and business plans
during its annual strategic planning process. Once these
goals are established, the company puts its business
process management matrix (BPMM) to work by
establishing teams and projects to accomplish objectives
and identifying the measurement needs. Each project
team (for new product development or products/
processes) is commissioned for the year to achieve a
certain objective. BPMMs are developed to indicate the
performance of these teams and projects. This effort
may include additions and revisions to the existing
measures. DPD frequently reevaluates the matrices to
ensure that the measures are driving the right behaviors.
Parties Responsible for Identifying

Measures Used on the Scorecard
89%
33%
Cross-functional team
67%
67%
Strategic planning group
44%
11%
Quality group
33%
33%
44%
Financial group
0
20
40
60
80
100
Percentage
Sponsors (n=9)
Partners (n=9)
Figure 15
Boeing CACSO:
Boeing CACSOs leadership began the process to

identify performance measures by examining Boeings
vision, strategy, and strategic objectives. The group
defined measures that would reveal how effectively the
CACSO organization is achieving its strategy and
supporting Boeings strategic objectives. The group
used scorecard trees to identify real drivers of
performance and to visually display the link between
objectives and measures. For each of the three scorecard perspectives (employee satisfaction, customer
satisfaction, and financial performance), the team
defined each measure, its purpose, and its operational
definition.
CACSOs strategy group continues to support the
implementation of process management and performance measurement by providing leadership and the
development and deployment teams with tools, training, and coaching. The strategy group aims to provide
tools and support in anticipation of the need so that
implementation will proceed as smoothly and quickly
as possible.
78%
Business/functional
management
Process Used to Identify

Measures on the Scorecard
Measures are identified
during the strategic
planning process.
100%
100%
Measures are
identified during the
budgeting process.
56%
56%
Measures are identified

with input from an industry
group or other outsider
critical to the business.
22%
78%
0
20
40
60
80
100
Percentage
Sponsors (n=9)
Partners (n=9)
Figure 16
47
KEY FINDINGS
As described in Finding 1, to focus the human resources organization on the

achievement of its people imperatives, GTE developed a new human resources
strategy. GTE HR developed 17 questions related to its ability to support this
business strategy. With the aid of consultants from Hewitt Associates, GTE identified
the data required to answer these questions, which became the measures that make up
GTE HRs balanced scorecard. As GTEs business strategies change, the company
will require different data to gauge its ability to meet the strategies. The GTE HR
balanced scorecard is designed to be flexible, changing when business strategies
change.
Performance measurement at Nortel Networks historically has been linked with

the strategic planning process. To develop the scorecard, Nortel Networks CCS
focused on: the 19992000 strategic plan, its existing metrics, and the five focus areas
(employee performance and satisfaction, internal processes, customers, market share,
and finance).
48
KEY FINDINGS
Finding 7:
Simple, intuitive tools are most effective
for managing and communicating
performance measurement information.
he balanced scorecard and its associated set of performance measures can create a major logistical challenge. Data, often generated at remote locations, need
to be input periodically into the performance measurement system. Narrative explanations of significant performance gaps need to be disseminated. Results need to be
accessible in a timely manner, which usually means within days of the reporting
periods close. Reports have to be structured, perhaps using color-coding, to draw
attention in a potential maze of data to those few areas requiring management
attention.
Most organizations initially manage performance measurement data and results
with manual systems, often based on simple spreadsheets and graphics packages. Data
are centrally collected using fax or e-mail and published from a single location. Once
the organizations have a clear understanding of their data needs, they can transition
to one of the many custom software packages designed for automating the scorecard
logistics. Other organizations start with these automated solutions and use their
hardwired framework as the template for their scorecard implementation (Figure 17,
page 50).
Even among best-practice organizations, performance measurement solutions are
not completely automated. The critical element of simplicity is demonstrated in
study 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 periodic
performance measurement reports. In each case, they used simple software programs
(e.g., Excel spreadsheets) to collect and analyze the data. Many organizations anticipate further advances in automation as enterprisewide solutions (such as SAP and
Oracle) become available.
Most responding organizations that have selected a technology solution or software
package did so after they implemented their performance measurement system
(Figure 18, page 50). However, a technology solution is not necessary for the successful
49
KEY FINDINGS
Collection Methods for Performance

Measurement System Data
Mix of automation and
manual effort
78%
89%
22%
11%
Manual effort only

0
20
40
60
80
100
implementation of the balanced scorecard. Many of the

partners and sponsors do not have a performance
measurement software package to complement their
performance measurement initiatives.
Best-practice organizations have developed simple
tools for displaying and communicating performance
measurement data. These tools are often paper-based
matrices that display vital measures, goals for those measures, metric owners, definitions, and other information
vital to the performance measurement system.
Percentage
Sponsors (n=9)
3M:
Partners (n=9)
The dental products division steering committee

implements performance measures. The steering
committee, with input from DPD employees, identifies
which measures will be used to determine the performance of each product and functional group. A business
process management matrix is created each year, which
enables DPD to achieve performance measures that are
leading indicators of business success. This matrix has
evolved over the years and changes based on what makes
sense to measure and drive the divisions actions.
All DPD employees have access to divisional
performance measurement along with their teams
measurement results on the LAN. Employees develop
their own EC & DP, based in part on peer, 360-degree
feedback results, which are accumulated by the manager
using a corporate-standard software package.
Everyone within the DPD can access the BPPM on
a shared directory on the file server. All employees have
an interest in monitoring performance using this tool,
because their day-to-day performance influences their
performance measures.
Each division is responsible for designing and
implementing its own performance measurement system.
Corporate auditors ensure common measures required
by law, but divisions measure other activities that
apply to their business. Consequently, there is little
commonality for definition of operational measures at
a corporatewide level. There is, however, a corporate
quality group that supports consistency of measures,
when applicable, and encourages the business units to
share learnings with each other.
Figure 17
Timing for Selection of a

Technology Solution
Before
performance measurement
system implementation
11%
13%
After
performance measurement
system implementation
33%
50%
N/A, do not have a

technology solution
56%
38%
0
20
40
60
Percentage
Sponsors (n=9)
Partners (n=9)
Figure 18
50
80
100
KEY FINDINGS
When 3M tried to roll up the divisions numbers, it did not see significant benefit
or improvement as a result. Because of the diversity of businesses, it is hard to see
the real numbers because some divisions are doing great, while others are not doing as
well. Corporate measures are directions and provide guidance to divisions. When
3M reports a single aggregate number to represent all divisional results, it makes sure
everyone understands how the number was calculated. Most aggregates are created
merely to see overall improvement within 3M.
Boeing CACSO:
Most data collection and analysis is performed using simple tools, such as Excel
spreadsheets and Access databases. Boeing CACSO has not yet automated the collection and analysis of performance-related data. In the long term, CACSO plans to
incorporate into the performance measurement system a Web front-end, drill-down
capability and interface with existing systems.
Some divisions within CACSO are ready to begin further automating their
performance measurement systems. CACSOs strategy group will work with those
divisions to establish the enterprise requirements for performance measurement
software, then evaluate off-the-shelf products and pilot the selected tool.
Implementation of an automated tool will enable CACSOs personnel to monitor,
assess, and manage process performance daily rather than once per month. In addition, the automated tool will simplify routine tasks and help to ensure data integrity.
CACSO uses a balanced scorecard measure definition template to ensure that
everyone in the organization shares a common understanding of each balanced
scorecard indicator. This template documents and communicates critical information
about each measure, such as the measure name, the purpose of the measure, the
operational definition, targets for the current and future periods, information about
data collection, and the reporting format.
Each indicator has a process owner. This individual has responsibility, accountability, and authority pertaining to his or her indicator. The performance measurement
teams can audit the BSC measure definition templates to ensure compliance with
definitions and consistency in application of methods.
Nortel Networks CCS ensures the integrity and accuracy of its data by making it
available to everyone. If a manager skewed data to show improved performance,
another manager would likely question the data via internal benchmarking while
trying to improve his or her own processes. This open environment and the Nortel
Networks culture, which supports accuracy and accountability, has allowed the
organization to self-audit its data. CCS made it a priority when it designed its
performance measurement system to apply consistent definitions to all of its metrics.
These definitions are available online using the PB Views software so that if there is a
question about how to measure something, the definition is easily accessible.
51
KEY FINDINGS
When CCS was looking for a technology application to aid its balanced scorecard implementation, it created a wish list of everything that it wanted its software to
do. First, it wanted the system to roll up raw data, not averages of percentages for
reporting. Second, it wanted the system to track performance measurement data at
several locations in order to compare data among CCSs multiple locations.
Additionally, it wanted a tool that offered color-coded performance indicators,
flexible reporting, benchmarkable data, and a package that could be used to
determine trends over time.
CCS has been very happy with its selection of PB Views. According to CCS, the
biggest weaknesses of the system are the limited reporting functions and the inability
to allow data feeds from other applications. CCS has been extremely pleased with
the service it has received from software vendors, including on-site visits and
suggestions for upgrades to the system. Using technology has encouraged CCS to
set goals for all of its measures, and it has helped the company measure its metrics
consistently across the organization.
52
Section Three
Communicating and
Driving Behaviors
55
KEY FINDINGS
Introduction
he ultimate objective of performance measurement and the balanced scorecard

is to favorably change individual and group behaviors to achieve organizational
objectives. This challenge is as timeless as management itself. The primary vehicle for
motivating behavioral change swings back and forth between empowerment and
financial reward. Some organizations believe that empowering a stable, well-trained,
and well-informed work force will encourage the desired behavior. Others believe
that individual compensation and rewards promote the desired behavior.
Where organizations stand with respect to the ebb and flow of this tide determines their approach to linking performance measurement to both career advancement
and individual compensation. Today, many organizations view performance-driven
bonus or at-risk systems linked to the achievement of balanced scorecard goals as their
primary incentive for desired change. Others are leery of this approach, seeing too many
opportunities for counter-productive behavior that might result in enhanced performance of individuals that ultimately suboptimizes overall performance.
The ultimate test of any scorecard is the ability of the employees who are executing
the measured processes to explain, in their own words, how they are contributing to
the overall success of their organization. This is important not only to boost selfesteem but also to guide the employees in decisions not covered by written policies and
procedures. It is these details that ultimately separate the winners from the losers in
todays highly competitive marketplace.
Any secrets kept from employees only cloud their view of the organizations
overall objectives and contributes to their potential confusion. Consequently, many
organizations reevaluate their past policies of restricted internal access to information and data. This may eventually lead to open publication of balanced scorecards
(much like financial results) and strategic objectives and the transition from a
need to know to a can know communication strategy.
56
KEY FINDINGS
Finding 8:
Few organizations effectively use
incentive compensation to manage
individual performance and contribution
to scorecard goals.
erhaps the most controversial performance measurement issue is linking

individual and/or group compensation to performance measures results. At the
heart of this controversy is a question of control. Who will argue against the precept
that you should be rewarded only for performance that you essentially completely
control? Yet few, if any, performance measures cleanly align themselves with this
rule. Rewarding or penalizing people for outcomes over which they have little or no
control violates the basic principles of fairness and equity. At best, it represents a
form of gambling in the workplace.
On the other hand, this is a question of accountability. Should a significant
component of pay should be based on performance. Seventy-five percent of both
study sponsors and best-practice partners report that their employee compensation is
tied to performance.
Further, nine of 17 survey respondents (53 percent) base employee incentive
compensation on a combination of financial and nonfinancial performance measures
results. In addition:
13 of 17 respondents (76 percent) report that incentive compensation is based
mostly on financial performance results, and
only four of 17 respondents (24 percent) report that incentive compensation is based
mostly on nonfinancial performance measures results.
AMOUNT OF COMPENSATION TIED TO PERFORMANCE MEASURES
The percentage of total compensation that is dependent on performance

measurement varies across positions (Figure 19, page 58). Responses from best-practice
organizations did not differ significantly from sponsor responses, except where noted.
(The number of study participants completing this part of the survey varied by question.)
Key observations include:
Executive incentive compensation generally ranges from 21 percent to 40-plus
percent of salary. However, two sponsor organizations reported executive incentive
compensation ranges from 1 percent to 10 percent of salary (n=12).
57
KEY FINDINGS
FIGURE 19: Percentage of Total Compensation Dependent on Performance Measures
Up to 10%
Up to 20%
Up to 30%
Up to 40%
90%
80%
70%
60%
Nonexempt and union

n=8
Exempt
n=12
Manager
n=13
Director
n=9
100%
80%
60%
40%
20%
0%
Other Compensation
Tied to Compensation
All eight respondents reported that incentive compensation for nonexempt and union
employees ranges from 1 percent to 10 percent of wages.
Ten of 12 respondents reported that exempt employees are eligible to receive from
1 percent to 10 percent of wages in incentive compensation. Two respondents
reported ranges of 11 percent to 20 percent.
TYPES OF COMPENSATION TIED TO PERFORMANCE MEASURES
Survey respondents were asked to identify the components of compensation

(bonus/incentive, salary, raise, benefits, and/or promotion) that are linked to performance measures for various positions within their organizations. Responses did not
vary significantly between best-practice partners and sponsor organizations.
By far, the most common element of compensation that is tied to performance
measurement is bonus or incentive compensation (Figure 20).
Additional observations include:
Only five respondents (33 percent) tie employee salary to performance measures.
These organizations tie primarily executive, director, and manager salaries to
performance measures.
Eight respondents (53 percent) tie raises to performance measures for employees
at almost all levels of the organization.
Five or six respondents (33 percent or 40 percent) link employee promotion with
performance measures for the various levels of the organization. (The number
of affirmative responses was either five or six for each of the six positions listed.)
No respondents tie employee benefits to performance measures.
APPROACHES
Most organizations accept the premise that tying compensation to performance

is the best way to motivate people to do the right things. The resulting tension drives
organizations to invent a wide variety of approaches.
58
KEY FINDINGS
Some try to resolve the dilemma by using group

rather than individual performance-driven incentives. At 3M, successful project teams receive rewards
based on completion of milestones and goals.
Others, like Caterpillar WLED, set nonfinancial performance hurdles that must be overcome for availability and distribution of incentive pay.
Still others base their variable compensation entirely
on financial results, thus creating a safe scorecard
(e.g., stock option programs such as 3Ms payout to
individuals based on overall financial performance.)
Some organizations, such as GTE Human Resources
and Boeing CACSO (work in progress), create an
overall index that reflects aggregate performance
across a wide variety of performance measures. The
hope is that this will average out the noise in the
metrics. However, with such global indexes, it is
easy to lose sight of the underlying metrics and their
linkage to strategy.
Percentage of Respondents That

Tie Bonus/Incentive Compensation
to Performance Measurement for
the Following Parties
Executive
100%
100%
Manager
88%
100%
88%
Director
71%
63%
Employee
86%
25%
Functional team
57%
0
20
40
60
80
100
Percentage
Sponsors (n=8)
It is unclear if any approach most effectively produces
Partners (n=7)
the desired changes in individual behavior. We are
unaware of any organizations that deploy their corporate
Figure 20
performance measures down to the level of individuals
scorecards linked to their compensation, an approach
taken by the Hoshin Kanri method widely used in Japan.
At Caterpillar WLED, corporate bold goals tie to individual SMART goals. But individual incentives are not based on these SMART
goals. At GTE HR, individuals are compensated based on overall performance
measures, rather than on their individual contribution to those measures.
Nearly all study participants voiced a desire to eventually link their performance
management and compensation systems to their balanced scorecards. In most cases,
they were gradually and cautiously moving toward this long-term objective. Caterpillar
WLED and GTE Human Resources have formalized and implemented performance
incentive programs tied to their balanced scorecards, as described below.
Caterpillar WLED:
Caterpillar WLEDs incentive compensation program ties a percentage of each

employees salary to certain WLED financial and nonfinancial performance measures
within the system. For example, one of the initial measures selected was based on
employee understanding of the new operating system and the associated performance
measures.
59
KEY FINDINGS
Caterpillar believes that tying measures to compensation increases the measures

perceived importance to employees. The percentage of each employees pay that is
tied directly to the performance measures varies depending on the level of the employee.
The higher in the organization, the greater the percentage of salary at risk. For every
measure, there is a baseline number that acts as a trigger point. If the WLEDs overall
performance does not reach this level, no money is paid out for that measure. Once
that trigger point is surpassed, there are levels of compensation concurrent with
WLEDs performance. Theoretically, there is no upper limit on the amount of
compensation any person can receive. The ICP percentages for each measure vary
depending on which bold goals are emphasized each year. Those with more importance
will have a greater ICP percentage.
The business resources group is in charge of calculating all of the ICP payouts
for employees at Caterpillar. HR department administers the program at a corporate
level; there is little input from the WLED level into the system. The payout system is
relatively complex, but each employee is given a packet that details its intricacies.
Linking compensation to performance measures was Caterpillars biggest challenge in implementing its performance measurement system. When Caterpillar first
converted to the ICP system, there was some discontent among employees who felt they
could have made more money using the old formulas. To combat this problem,
Caterpillar initiated a program called the Business Understanding Plan, a strategic
initiative focused on increasing employee understanding and support of organizational changes.
GTE HR employee incentive compensation was linked to scorecard performance

measures as of the first quarter of 1999, when the scorecard was rolled out. Although
GTE HR is early in its implementation of the balanced scorecard, the organizations
leaders felt that linking compensation to performance measures would get
everyones eyes on the ball quickly and keep employees focused on what is important
to the business. To date, the link appears to have created this desired result.
Incentive compensation is paid based on GTE performance as indicated by the scorecard; only measures with targets and weights influence incentive compensation.
Overall performance indices must meet a minimum threshold for incentive compensation to be paid. Although specific targets are set for each performance measure,
incentive compensation amounts may increase based on actual performance along a
predefined continuum. It is limited by a defined maximum.
Incentive compensation amounts vary from 10 percent of base pay for managers
up to 40 percent for directors and above. About one-half of the incentive and
compensation amount is tied to financial performance of the company, the other half
is tied to functional scorecard measures.
60
KEY FINDINGS
TIME FRAME FOR TYING COMPENSATION TO
PERFORMANCE MEASUREMENT RESULTS
Linking employee compensation to performance

measurement results is one of the biggest challenges
associated with implementation of a performance
measurement system. The rollout of compensation
changes can be a sensitive issue among employees who are
not accustomed to this type of individual accountability
for performance. However, survey responses about the
timing of the link between compensation and performance measures are largely inconclusive. As shown in
Figure 21, survey respondents time frames varied from
less than one year to more than 10 years.
Amount of Time Measurement

System Was in Place Before
Compensation Was Tied to It
38%
More than 10 years

0%
13%
Five to nine years
29%
0%
0%
Three to five years
One to three years
25%
29%
Less than one year
25%
43%
0
20
40
60
80
100
Percentage
Sponsors (n=8)
Partners (n=7)
Figure 21
61
KEY FINDINGS
Finding 9:
Best-practice organizations enhance employee
understanding of and support for performance
measurement through customized, ongoing
communication.
oo often, a new initiative is introduced with much fanfare and corporatewide

visibility. Without continuing reinforcement and promotion of the message
under this scenario, the initiative is quickly forgotten or written off as the fad of the
month. Best-practice practitioners have recognized the need for continuous
communication of the balanced scorecard if its message is to stick. The approaches
to communication vary according to the culture of each organization. However,
several common factors appear effective:
Executive leaders, such as the vice president and general manager at Boeing
CACSO, take an ongoing, high-profile role in communicating about the scorecard.
Communication to all levels of employees is important. GTE Human Resources
scorecard is provided to all HR employees and is purposefully composed for this
audience.
Openness about performance results can help to overcome the resistance to
measurement. Companywide access to data can increase acceptance and
accountability.
Face-to-face communication is most effective in enhancing employee understanding and support of performance measurement. Examples include the Nortel
Networks road show and the manager-employee performance development
process at Caterpillar WLED.
Regardless of the specific communication approach, nearly all study participants
report that communication about performance measurement and results has increased
employees understanding of how they contribute to the overall success of the organization
(Figure 22, page 63). As shown in Figure 23 (page 64), survey respondents reported
a similar level of understanding at most levels in the organization, with the exception
of the line-employee level. Partners rated their employees as having a higher
understanding of the performance measures system than did sponsor organizations.
62
KEY FINDINGS
The following scale was used:

Methods of Communicating
1: does not know what is being measured
Performance Measurement Results
3: knows what is being measured, but does not fully
understand the link to strategy
Within the Organization
5: understands the link between their work and
overall company performance.
78%
Meeting
88%
In describing the methods used to assess employee
understanding of the performance measurement system,
63%
Intranet
more than 65 percent of study participants reported using
78%
employee discussions in executive, director, and manager
positions. More than one-half of study participants
50%
Hard-copy reports
reported using general perception to assess line employee
22%
understanding of the performance measurement system.
50%
Generally, fewer partners than sponsors rely on general
Bulletin board
44%
perception across all levels of the organization. About
one-third of study participants use surveys to assess
50%
E-mail
44%
employee understanding at one or more of the positions
listed (executive, director, manager, employee).
25%
Word of mouth
Early balanced scorecard pioneers recognized the
44%
potential role of information technology in communication
13%
and management of the balanced scorecard. However, a
Video
33%
decade ago this translated into a complex and expensive
infrastructure of mainframe computers with remote color
0
20
40
60
80
100
terminals and high-speed modem access. For most global
Sponsors (n=8)
Percentage
organizations, this proved unfeasible in practice.
Partners (n=9)
Today, with the widespread corporate use of
Figure 22
Internet/intranet-based LANs and WANs, the previous
technological roadblocks have been overcome. Individual
employees can easily access and analyze performance
measurement data and results. This technology is more
effective than company newspapers and periodic rallies
as a communication, reinforcement, and promotion
vehicle.
All of the study partners use traditional tools such as leadership meetings and
broad-based involvement to promote the balanced scorecard. At the same time, they
develop network-based communications tools for ongoing reinforcement.
Boeing CACSO:
Communication about the balanced scorecard at Boeing CACSO takes many

forms. In addition to the leadership meetings described below, the CACSO Strategy
Group Web site serves as a resource for performance management methodologies.
All employees can access this information.
63
KEY FINDINGS
Boeing kicked off communication about its flight

deck at a CACSO all-leaders meeting. All-leaders meetings take place every six months and include 400 managers,
mentors, coaches, and other leaders within CACSO
4.9
organization. These meetings continue to provide a
Executive
4.8
vehicle for communication about performance measurement processes, data, and results. The information
4.3
from this meeting is captured on video and shared with
Director
4.6
all employees across the organization. In addition, key
3.8
messages from the all-leaders meeting can be viewed on
Manager
3.8
the company Web site.
The vice president and general manager continue to
2.3
Employees
3.2
reinforce the flight deck and performance measurement
through open forums with all levels of employees.
1.0
2.0
3.0
4.0
5.0
The communications group randomly selects employ1 = does not know what is being measured;
5 = understands the link between their work
ees from across the organization to attend two-hour
and overall company performance
Sponsors (n=8)
forums, which take place about once every two weeks.
Partners (n=9)
This medium provides an opportunity for leadership to
Figure 23
interact directly with line employees, providing information as well as listening for issues and opportunities.
To ensure employees understand Boeing strategy, HR surveys a random sample of
about 100 employees every month. This brief survey (seven questions with essay-style
answers) includes two questions about how well employees understand the business
strategy. All information gathered from survey responses is rolled up into
three measures that are reported at the leaderships monthly scorecard review.
Boeing CACSO has set aggressive targets for these people measures.
CACSOs leadership meets monthly to review performance and strategy. Each
member of the CACSO leadership team then distributes the information to his or
her respective leadership team. In addition, key information is communicated to the
entire organization via the customer support Web site.
Levels of Knowledge About

the Measurement System
Caterpillar WLED:
Communication about performance measurement at Caterpillar WLED has

created value by offering an opportunity for employees from different departments
within the plant to share best practices. Caterpillar believes that sharing information
and creating a form of internal competition creates ownership and pride within the
departments. Communicating the overall strategy of the organization to employees
empowers them to make decisions that company leaders feel will positively impact
the organization.
Caterpillar uses various methods to enable all employees to access performance
measurement data, including literature, videos, the company newspaper, online systems,
and verbal communications from supervisors in either a one-on-one meeting or a
group discussion. The front-line employees preferred methods of communication are
64
KEY FINDINGS
the front-line supervisor and the online system. These two methods are used to address
issues that affect employees on a daily basis, such as quality, safety, and sharing best
practices within the plant. In addition to press releases, the print forms of communication primarily are used to convey messages about overall company performance.
In addition, during the annual performance development process, all managers
and employees look at the organizations critical success factors and bold goals to
develop individual SMART goals. The employees gain a better understanding of
the impact that their work has on the success of the company.
GTE HR produces its balanced scorecard quarterly and shares it with all 2,000 GTE
HR employees, as well as with GTEs business leaders and board of directors. The
scorecard includes:
an introduction that can be easily understood by all 2,000 HR employees;
news briefs that detail significant accomplishments and demonstrate the value of
HR to the business;
a high-level summary of HR performance in each of the four perspectives;
definitions of important terms to help the reader understand the scorecard;
interpretive commentary noting items of interest;
a table showing all measures, actual results for the quarter and the year to date,
and targets for the measures, where applicable; and
charts and graphs, where applicable.
The 1999 quarterly scorecards were distributed to all HR employees in hardcopy form. In 2000, GTE HR hopes to gain a broader audience for the scorecard.
Scorecard results and news briefs will be posted on the GTE HR intranet.
In addition, the PMA group uses PB Views software to manage the performance
measures system. The software also enables the PMA group to create briefing books
for customers of HR, which allow them to view and analyze the data that are most
relevant to the process for which they are responsible.
Nortel Networks CCS business performance measurement team has conducted

road shows within the company to tell all employees about the performance measurement system. By communicating the performance measurement information, CCS
has helped all employees understand how they contribute to the mission and vision of
CCS. This has fostered a sense of ownership in all employees. Employees see the link
between their work and the goals of the organization, and they are more focused on
the important issues and are able to make data-driven decisions.
The scorecard is well understood, and it has growing acceptance throughout
Nortel Networks customer service. Directors and operational managers can use the PB
Views system to review performance measurement data at any time. They are encouraged to view the data at least monthly to ensure that their objectives are being met. Other
employees soon will be able to view performance measures reports on the intranet.
65
Critical Success Factors
67
KEY FINDINGS
Introduction
he successful implementation of a performance measurement system depends on

the convergence of many factors. The major overriding themes that emerged from
study research are described in the nine findings of this report. However, the study
team observed several additional features of balanced scorecard implementations at bestpractice partners that merit mention. These include:
1. ensuring data integrity,
2. calibration of expectations,
3. developing individual accountability,
4. change management through positive positioning of performance measurement
initiatives, and
5. starting small to ensure big success.
These critical success factors are described in this section.
ENSURING DATA INTEGRITY
Implementing a successful performance measurement system and gaining

organizational buy-in to the system is impossible if the organization cannot rely on the
integrity of study data. Study participants took a number of approaches to ensuring
the integrity of performance measurement data (Figure 24, page 69). Most partner organizations use internal auditing teams to ensure data integrity. A higher percentage
of sponsors than partners reported lacking a formal approach to ensuring data integrity.
Boeing CACSO:
Boeing CACSOs balanced scorecard measure definition template, discussed in

Finding 7, ensures that all employees understand each balanced scorecard indicator in
the same way. The performance measurement teams can audit the templates to ensure
compliance with definitions and consistency in application of methods.
68
KEY FINDINGS
Caterpillar WLED:
Caterpillar WLED ensures the integrity of data by hiring an outside consultant (PricewaterhouseCoopers) to
audit all of its data and collection processes and the financial and nonfinancial performance data. In addition to
PricewaterhouseCoopers, Caterpillar has its own inhouse auditing team that visits the plant annually to conduct audits. Caterpillars self-auditing unit is capable of
performing several types of audits on the plant and
ensures that at least one of each of the different audits is
completed every three years. Audits that Caterpillar
WLED feels are more crucial to the success of its business are conducted at least once a year.
How Integrity of the

Data Used in the Measurement
System Is Ensured
Through peer pressure or
culture of integrity
13%
Internal auditing team
56%
25%
33%
External auditors
No formal approach to
ensuring data integrity
CCS places the data in a public forum to ensure its

accuracy. This open environment and the Nortel
Networks culture, which supports accuracy and accountability, has allowed managers to self-audit their data.
CCS made it a priority when it designed its performance measurement system to apply consistent definitions to all of its metrics. These definitions are available
online using the PB Views software.
63%
67%
38%
11%
0
20
40
60
80
100
Percentage
Sponsors (n=8)
Partners (n=8)
Figure 24
CALIBRATION OF EXPECTATIONS
Another key to successful implementation of a performance measurement system

is to ensure that expectations for performance targets are uniformly set for all
organizational units. This prevents gaming (and suspicion of gaming) in terms of
unrealistically low expectations, resulting in suspiciously stellar performance results.
Leadership must take responsibility to ensure that uniform expectations are set.
Leaders must also clearly communicate this requirement across the organization.
At GTE, the executive vice president of HR personally reviews and calibrates the
quarterly targets for each of the HR departments to ensure consistency and rigor of
target-setting.
Caterpillar WLED:
To ensure consistency of measures among employees, divisional managers meet to

review the SMART goals of all employees within their divisions. They confirm that
definitions are applied consistently to all employees and all SMART goals are linked
to the bold goals for the department. Additionally, the CEO and a group of presidents
have the responsibility to ensure that all of the profit centers in the company apply the
measures consistently.
69
KEY FINDINGS
DEVELOPING INDIVIDUAL ACCOUNTABILITY
Tools to Assist Employees

in Achieving Performance Measures
43%
Management support
89%
43%
Clearly defined goals
89%
71%
78%
Performance incentives
Key to engendering a performance measurement

culture in the organization is gaining individual commitment and accountability for performance measures.
All best-practice organizations take steps to ensure that
individuals understand and have a sense of ownership
of performance results. Providing standards and tools
to employees increases their understanding of performance measurement concepts and creates a common
performance measurement vocabulary across the
organization (Figure 25).
43%
Training/education
3M:
78%
43%
Technology tools
56%
0
20
40
60
Percentage
Sponsors (n=7)
Partners (n=9)
Figure 25
80
100
Each of the individual teams that compose the

Dental Products Division works with its sponsors
(steering committee members) to determine criteria,
priority, and weighting. Sponsors and the team leaders
are jointly accountable for the teams progress. During
the annual steering committee strategic planning meeting, every line item is discussed. Each sponsor explains
how he or she obtained the numbers.
Boeing CACSO:
Boeing CACSOs leadership aims to involve the organization in the performance measurement system through
extensive two-way dialogue in order to develop commitment and buy-in to the process. The strategy group acknowledges that this approach
lengthens the time required for implementation, but it feels that the resulting shared
vision, commitment, and results will be more durable.
Each indicator has a process owner who holds responsibility for, accountability
for, and authority over the measure. Boeing CACSOs leadership foresees that
implementing performance measurement technology tools and putting these tools
in the hands of employees will effectively increase ownership and understanding
among employees.
Another critical success factor for CACSO was the development of tools and
methods to populate and display the balanced scorecard. All of these tools were
created using simple spreadsheets so that anyone could access and use the performance
measurement tools.
Caterpillar WLED:
All employees are well aware of their SMART goals because they are the basis for
employee evaluation. The links between employee goals and the critical success
factors are apparent, as are the key values that should be the framework for all
70
KEY FINDINGS
employees at Caterpillar. During the PDP process, managers and employees design
the employees SMART goals for the year. The first step in the process is for employees and managers to look at the higher levels of the performance measurement system
(CSFs and bold goals) to develop measures for employees that support these goals.
The idea behind the PDP system is to give employees a better understanding of their
performance measures, goals, and the impact that their work has on the overall
success of the company.
GTEs HR Operation Center enlisted subject matter experts from each area of
the Operations Center to participate in the measurement initiative. This ensured
that the new system considered process-specific knowledge and helped to gain buy-in
from those participants and their respective departments.
CHANGE MANAGEMENT THROUGH POSITIVE POSITIONING OF PERFORMANCE
MEASUREMENT INITIATIVE
To effectively manage change, an organization must aggressively identify and

acknowledge the effects of change on individuals and organizations as a whole. The
organization also must facilitate change by easing the transition for those affected by
the change. As with other organizational changes, the implementation of performance measurement can present logistical and technical challenges as well as personal
challenges as employees grapple with newfound accountability and attempt to become
more results-driven. Successful organizations recognize this challenge and devote
resources to facilitating the change.
Caterpillar WLED:
Caterpillar WLED combated employee skepticism by using its business understanding plan, which helped the employees understand why the organization was
changing and thus helped gain their support for the program.
GTE HRs workforce development group recognized that the strategic performance measurement would require extensive communication and education of personnel to secure buy-in. This group modeled the development process for the overall
HR organization and addressed change issues and becoming the early adopter of
the balanced scorecard.
Key to overcoming resistance to the change was the leadership and active
involvement of senior sponsors, specifically the executive vice president of HR and
departmental vice presidents, such as the vice president of workforce development.
These leaders played a major role in positioning the performance measurement initiative as a learning experience and a constructive, positive process of improvement.
The organizations positioning of the balanced scorecard as a positive improvement
effort rather than a mechanism for assigning blame enabled employees to feel more
71
KEY FINDINGS
comfortable during the change without worrying about what the scorecard might
reveal about their individual performance.
STARTING SMALL TO ENSURE BIG SUCCESS
Another key recurring theme among the studys best-practice organizations is the
willingness to launch the performance measurement effort as soon as possible, even if
this entails launching before fully developing a complete set of metrics or without a
sophisticated method for analysis or communication.
Best-practice organizations agreed that beginning to communicate the concepts
of performance measurement early can help to allay discomfort and avoid surprises.
Oftentimes, existing metrics can be identified and reported immediately. The
organization can adjust to accountability for performance metrics using familiar
measures.
Further, the organization should become accustomed to the idea that measures
may change along with strategies and processes. This type of change will be ongoing,
even as performance measurement processes are finalized.
As with any change initiative, quick wins, or displaying early benefits from the
effort, can garner support for the change. Similarly, over-designing the performance
measurement system before rollout can delay the implementation and can lose
momentum, enthusiasm, and even credibility.
GTE HRs willingness to measure easily measurable items jump-started the

initiative. If the organization had waited until perfect systems were in place to gather
perfect data, the balanced scorecard implementation would have been substantially
delayed. The learn-as-you-go approach has encouraged innovation and garnered
support.
72
Partner Organization Profiles
76
3M
78
The Boeing CompanyCommerical

Airline Customer Support Organization
80
CaterpillarWheel Loader and

Excavator Division
82
GTEHuman Resources Organization
84
Nortel NetworksCanadian Customer

Service Division
75
PROFILES
3M
3M
SNAPSHOT
Industry:
Manufacturing
Headquarters:
St. Paul, Minn.

Revenue:
$15.07 billion
Employees:
75,639
Web Page:
www.3m.com
76
is a major manufacturer of consumer products, including Scotch tape,

Post-it Notes, and Thinsulate. The company develops a wide range of
technologies, including adhesives, ceramics, microstructured surfaces, drug delivery,
melt processing, coated abrasives, films, and optics. 3M prides itself on its ability to
produce diverse products and uses its experience in new product development to
build a strong base of technology and learning. Because of its vast knowledge of technology and innovation, 3M is able to introduce more than 500 new products each year.
3M is a global company with offices in more than 62 countries and sales in 200
counties. Although the company is so widespread, it has a strong culture that permeates geographical boundaries. 3M is proud of its culture and feels it is important
to communicate its values and culture to all employees. Its values include:
satisfying customers with superior quality, value, and service;
providing investors with an attractive return;
respecting the social and physical environment; and
being a company employees are proud to be part of.
3Ms dental products division (DPD) is focused on in this study. One of 3Ms
most successful divisions, 3M DPD was awarded the Malcolm Baldrige National
Quality Award in 1997. It produces more than 1,300 products for 600,000-plus dentists. The division has 700 employees worldwide and locations in 83 countries.
DPDs numerous goals and objectives are summarized in what it calls its Vision
2005: To become the supplier of choice to global dental professional markets, providing
world-class quality and innovative products. The divisions values are:
emphasize character values of all employees;
release the power of our people;
bring enthusiasm, joy, happiness, and fun to the workplace;
take personal responsibility for the success of the team;
know the problem and fix it;
PROFILES
be committed to greatness in our work;

delight each other by listening, understanding, and feeling; and
practice trust, respect and self-respect, honesty, and honor.
Like its parent, DPD is committed to customer satisfaction. The driving force behind
every business decision is DPDs commitment to its customers. This commitment led
to the divisions focus on quality and performance measurement.
PERFORMANCE MEASUREMENT AT 3M AND 3M DPD
Although 3M values outside the box thinking, innovation, and challenge to the
status quo, the organization sought a framework around which to align the efforts
and energies of its employees. The organization wished to focus on elements beyond
financial measures (operating income, cost of capital, and economic profit.) 3M
recognizes that financial results are lagging measures and emphasizes the management of operational indicators in real time.
3M learned about the balanced scorecard in the mid-1990s. Today, 3M uses a
balanced measurement system companywide at all levels, including divisions, business
units, products, and employees. The form of the balanced measurement system is
flexible, in keeping with 3Ms value of autonomy for its 40 to 45 divisions. The
performance measures communicate what is important to the company across diverse
locations and operations.
3M DPD began its measurement efforts as a means to fix recurring field problems
and win back customers it had lost in the late 1980s. The division identified goals and
established a business process to track programs and ensure these goals were achieved.
The division steering committee adapted performance management in the early 1990s
and developed its balanced scorecard, called the business process performance matrix.
3M DPD has seen many tangible benefits from its quality journey, enabled
through effective performance measurement. Among these results are:
consistent revenue performance,
sales growth of 250 percent (projected) based on 1987 base,
more than 40 percent (1999) of annual global sales from new projects,
dramatically improved safety results,
more than 50 percent improvement in waste reduction since 1990,
consistently high channel partner satisfaction with products and services and
technical support, and
increasing economic profit as a percent of sales.
77
PROFILES
The Boeing Company

Commercial Airplane Customer
Support Organization
T
SNAPSHOT
Industry:
Manufacturing
Headquarters:
Seattle, Wash.
Revenue:
$56.2 billion (1998)

Employees:
231,100 (1998)
Web Page:
www.boeing.com
78
he only maker of big commercial jets in the United States, Boeing is the worlds
largest aerospace company. It has divisions devoted to commercial airplanes,
military aircraft and missiles, and space and communications systems.
The companys commercial planes (63 percent of sales) include the Boeing 737
(the worlds most popular commercial aircraft), 747, 757, 767, and 777 jets, which
represent a variety of passenger and cargo configurations and range capabilities.
The dominant producer of large commercial aircraft, Boeings only competition comes
from the French consortium, Airbus.
Boeings military aircraft include the F/A-18 Hornet strike fighter, the venerable
F-15E Eagle fighter-bomber, the AH-64D Apache Longbow helicopter, and the
C-17 Globemaster III transport. Missiles include the Standoff Land Attack Missile
(SLAM ER) and the Joint Direct Attack Munition (JDAM).
Major Boeing space systems include the space shuttle (with Lockheed Martin), the
Delta family of rockets, global positioning systems (GPS), and communications
satellites. Through partnerships with other companies, Boeing is planning to offer
satellite communication services. Boeing also is the prime contractor for the
International Space Station.1
Boeing consists of multiple business units, including the space and communications group, the commercial airplane group, and the military aircraft and
missile systems group. The Boeing commercial airplane Customer Support
Organization (CACSO), is part of the commercial aviation services unit, which is an
operating unit of the commercial airplane group. CACSO is responsible for
supporting and maintaining the existing fleet of 11,000 Boeing aircraft currently in
service. The group also offers more than 250 products, such as technical documentation and parts.
PROFILES
PERFORMANCE MEASUREMENT AT BOEING CACSO
Boeing introduced its value scorecard system in the second quarter of 1999. The
CFO has championed the scorecard as a tool to communicate to analysts Boeings focus
on value and its near- and long-term goals. The entire Boeing organization must
align with the measures expressed on this companywide scorecard.
CACSO rolled out its flight deck performance measurement system about a year
ago. The organization uses the flight deck tool as a vehicle for change, to increase the
organizations focus on process management, and to drive the development of
performance at lower levels of the organization.
CACSO believes that the performance measurement system has resulted in great
focus on what is important to the organization. It seems to have more of a
sense of direction. And though it is difficult to identify the ROI for performance
measurement initiatives, CACSO has seen some immediate process improvements
gained from its focus on process management.
1 www.hoovers.com
79
PROFILES
CaterpillarWheel Loader
and Excavator Division
C
SNAPSHOT
Industry:
Manufacturing
Headquarters:
Peoria, Ill.
Revenue:
$20.9 billion (1998)

Employees:
65,800 (1998)
Web Page:
www.caterpillar.com
aterpillar is the worlds leading manufacturer of earthmoving machinery and a

leading supplier of agricultural equipment. In an attempt to combat downturns in these industries, the company has expanded into engine manufacturing and
financing. It also provides insurance to Caterpillar customers and dealers and makes
mining, logging, and oil industry equipment. Caterpillar has manufacturing operations in 22 countries and a global network of 195 dealers serving 166 countries.
Caterpillar distributes its own line of boots, caps, and jeans, as well as other manufacturers (DaimlerChrysler and Puma).
Already a global organizationnon-U.S. sales account for 49 percent of the companys salesCaterpillar is investing in new markets such as China, the former Soviet
republics, Central Europe, and a number of other developing markets.2
Caterpillars Wheel Loader and Excavator Division (WLED) began operations
in 1958, located on 370 acres of land just south of Aurora, Ill.; it provides jobs to
2,900 employees. One of Caterpillars 17 profit centers, the division is composed of
the following principal businesses:
medium wheel loader,
forest products,
hydraulic excavators,
large wheel loaders and compactors, and
powertrain components.
PERFORMANCE MEASUREMENT AT CATERPILLAR WLED
In the early 1980s, Caterpillar experienced a severe decline in its business growth
due to foreign competition. In an effort to modernize its processes and facilities,
Caterpillar began the Plant With a Future program in 1983 and put it into practice
between 1985 and 1993 at all of its facilities worldwide. This program enabled the
company to reduce manufacturing space and reduce cycle times from 24 days to
six days.
80
PROFILES
Before Caterpillar reorganized in the 1990s, WLED focused on reducing costs

instead of customers. Its function was to build tractors, and it did just thatfar more
than it could sell. Although on paper Caterpillar appeared to be performing well, its
measurement system was not a true reflection of the business.
To become more customer oriented and a leaner manufacturing organization,
Caterpillar reorganized into four service centers and 13 process centers. The
corporate office deemed that a balanced scorecard would be the most effective tool for
these profit centers to manage their business. Product managers began by using a
tool called the product managers business statement to track all of their financial
and nonfinancial measures every month. The key for each of the product managers
was to identify key business measures for the new organizational structure.
This formed the basis for the balanced scorecard performance measurement system
used at Caterpillar today.
2 www.hoovers.com
81
PROFILES
GTE Corporation
Human Resources Organization
G
SNAPSHOT
Industry:
Telecommunications
Headquarters:
Irving, Texas
Revenue:
$25.4 billion (1998)

Employees:
120,000 (1998)
Web Page:
www.gte.com
TE, the largest non-Baby Bell recently agreed to be acquired by Bell Atlantic,
the largest Baby Bell. After the merger, the new organization will have 240,000
employees and will be the leading local phone company in the United States. GTE
serves more than 23 million local phone customers in the United States and offers
long-distance service in every state. It provides cellular and PCS phone service to
5 million subscribers through subsidiary GTE Wireless, offers consumer Internet
access through GTE.net, and has cable franchises in California and Florida. GTE
also provides telecom services in Argentina, Canada, China, the Dominican Republic,
and Venezuela. In a joint venture with investment firm Georgetown Partners, GTE
is buying about half of Ameritechs wireless business.3
GTEs human resources (HR) organization is made up of three major components:
1. the center of expertise, which creates and implements HR programs, policies,
and strategies;
2. business partners, which provide on-site consulting and assessment to business
leaders, employees, and managers; and
3. service delivery/operations centers, which deliver traditional transactional HR
services (e.g., payroll processing, benefits enrollment) to employees and managers.
The 2,000-person GTE HR organization supports six strategic business units,
each of which has a vice president of HR and a staff of HR business partners.
PERFORMANCE MEASUREMENT AT GTE HR
Three years ago, the Telecommunications Act deregulated GTEs business.

The company realized it would need different strategies to compete in this new
environment. In addition, customers had become more demanding, competitors
had gained new capabilities, and the labor market had tightened. Through a process
called Leadership 2000, GTE senior management from across the organization
addressed these changes and challenges and developed strategies and targeted business
results for the next five to 10 years.
82
PROFILES
GTE realized that its people were key to its future success. During the Leadership
2000 effort, GTE HR leaders inventoried the current skills and capabilities that would
provide value in the future, then identified the employee-focused imperatives to grow
that talent and increase the value delivered by GTE employees. GTE would need
new behaviors, actions, and capabilities to drive business results.
To focus the HR organization on the achievement of these imperatives, GTE
developed a new HR strategy to support the business strategy. This strategy included
five strategic thrusts:
1. talent,
2. leadership,
3. customer service and support,
4. organizational integration, and
5. HR capability.
In the first quarter of 1998, four members of a newly formed planning measurement and analysis (PMA) team translated the GTE HR strategy into a measurement
model for the future. The group selected the balanced scorecard approach and
developed a proof for the concept. GTE HR senior management approved the
balanced scorecard as the communication vehicle for GTEs strategy, and the PMA team
introduced the first quarterly balanced scorecard one year after beginning the initiative.
The scorecard concept has been readily adopted within many areas of the GTE HR
organization.
The benefits of GTE HRs scorecard include:
improving communication throughout the organization,
monitoring critical work force indicators,
assessing organizational health and competitive capability,
measuring the enterprisewide results of HR initiatives,
enhancing HRs ability to provide effective solutions,
promoting a culture of continuous improvement, and
focusing on the key factors of business success.
3 www.hoovers.com
83
PROFILES
Nortel NetworksCanadian
Customer Service Division
T
SNAPSHOT
Industry:
Telecommunications
Headquarters:
Ontario, Canada
Revenue:
$17.5 billion (1998)

Employees:
75,000 (1998)
Web Page:
www.nortelworks.com
84
he No.2 maker of phone equipment (behind Lucent Technologies) is pushing to

become a leader in the convergence of voice, data, and video on the same network.
Brampton, Ontario, Canada-based Nortel Networks provides communications infrastructure equipment and services for many of the worlds largest telecommunications
providers. The companys expertise encompasses public data networks; enterprise
networks (primarily private digital switching systems); wireless networks, including cellular and personal communication services (PCS); and broadband networking products for telecom carriers. More than half of its sales are in the United States. BCE, the
parent of Bell Canada, owns about 40 percent of the company.4
Nortel Networks Canadian customer service (CCS) division is located in
Brampton. Notel Networks CCS supports Nortel Networks Canada region. Other
similar business centers are located in Raleigh-Durham, N.C.; Richardson, TX;
and Atlanta.
PERFORMANCE MEASUREMENT AT NORTEL NETWORKS CCS
In recent years Nortel Networks has found its industry to be changing rapidly.
Widespread use of the Internet brought new types of customers to the company.
Nortel Networks also saw new network carriers and the dawn of deregulation of the
industry. The company realized it needed a performance measurement system that
would help it compete in this dynamic environment.
CCS began its performance measurement efforts in early 1998 by creating two
separate groups: one tasked with creating the strategic vision for the company and
the other to track organizational performance. This second group, the business performance measurement (BPM) team, decided to use a balanced scorecard system.
In July 1998 CCS developed its vision and mission and communicated them to
all CCS employees. This was the first step in gaining employee buy-in for the performance
measurement system. The next significant step was linking the organizations metrics
to its strategic and operational scorecards. Beginning the following year all managers
PROFILES
were trained how to use the balance scorecard, and they began to report all of their data
using this tool. Following the rollout of this device, CCS has focused on communicating the benefits of the balanced scorecard to all employees.
Nortel Networks has seen many benefits from its performance measurement
initiative.
Focusing its efforts on only 16 measures has helped create a narrowly focused
work force that has concentrated on what is most important to the organization.
This has been helpful in staffing.
All of the measures are strongly linked to the strategic plan, which has enabled
CCS to track its progress toward its strategic goals.
The balanced scorecard has given the organization a secure foundation of measurements that are indicative of organizational direction and independent of management. This will help the company maintain strategic direction and focus
should its leadership change.
CCS now is able to make decisions based on data rather than instinct.
4 www.hoovers.com
85
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1998 American Productivity & Quality Center. All rights reserved.

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or any other publicly accessible forum. No other use of this report may be made by any
third party. No other reproduction rights are granted. No rights to make derivative
works are granted.
Penalties
There are substantial penalties for willful violation of copyrights existing under this
license, including criminal and civil penalties.
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to request a catalog of products and services, contact APQC at 800-776-9676 (713681-4020 outside the U.S.), e-mail at apqcinfo@apqc.org, or visit our Web site:
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Contents of Study Report

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Critical Success Factors

Partner Organization Profiles

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4. Executives must be actively involved in leading the implementation effort.

8. Few organizations effectively use incentive compensation to manage individual

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Adaptation and improvement from the best practices identified throughout a

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hen assessing performance measurement practices across organizations, it is

Sara Lee Corporation

Financial services and insurance

LifeWay Christian Resources*

Case New Holland

United States Postal Service

City of Charlotte, North Carolina

PP&L Resources Inc.

* did not answer the detailed questionnaire

As indicated in Figure 2, most of the study participants

Total Number of Employees

The balanced scorecard approach to performance meaFigure 2

FIGURE 3: Revenue vs. Spending on Measurement

Average number of FTEs

Average annual spending

Degree of Change in Measurement

Performance measurement has not been a one-time

Goals set for each measure

Time frame for goals

According to the survey results, all of the organizations

Section One: Findings 1 and 2

Section Two: Findings 47

Section Three: Findings 8 and 9

Designing the Performance

MEASURE WHAT MAT TERS

of performance measurement and to develop organizationally relevant success stories.

MEASURE WHAT MAT TERS

As mentioned previously, an organization will look to the performance measures

Boeing CACSO has embraced the Process Management Improvement

Caterpillar WLED uses a system called Business Process Simplification (BPSI)

4. Is HR creating an environment that encourages

Party Responsible for Identifying