whitepaper

The balanced scorecard—detailed in a 1996 book

The Balanced Scorecard— by its architects, Robert Kaplan and David
Does It Answer the Tough Norton—offers you a way to check where your
organization has been and to determine where it’s
Questions? going. The case of DDI shows how it could work
By Karen Colteryahn and Patty Davis for you.

Measurement as a Strategic Oh, the Questions!

Management Tool Leaders in organizations everywhere encounter the
same tough questions:
No matter the game, the concept remains pretty
• Are we achieving our business strategies?
simple: If you don’t keep score, how do you know
• Do our business units align with these strategies?
if you’re winning? That same notion applies to the
• Are individual employees supporting
business world: How can you manage your
these strategies?
organization’s performance if you can’t measure
• Are we making a profit while meeting
its progress?
customer needs?
• Are these the right strategies to position us
The answer? You’ve got to keep score. In the
for the future?
business world, though, the problem is what to keep
score of. Do you look solely at the bottom line, or
To answer these questions, most organizations
are things like customer loyalty just as important?
traditionally used financial measures. Problem was,
What you need is balance. Balance in this case financial measures were only part of the overall
comes in the form of the balanced scorecard. equation. At DDI we determined that we needed to
A number of organizations, Development find cause-and-effect relationships so we could
Dimensions International (DDI) included, have adjust our strategies if necessary. That’s where the
used the scorecard to measure how they’re doing. balanced scorecard helped.
It evaluates performance from four directions:
• Financial
• Customer
• Internal business process
• Learning and growth

To learn more, call your local DDI office or contact:

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DEVELOPMENT DIMENSIONS INTERNATIONAL

Before you’re ready to use the scorecard to measure
performance, though, make sure your organization
has done two things:
• Agreed on its strategic direction.
• Aligned organizational efforts and
focused every person on achieving the
business strategies.
The following graphic shows the steps involved
before you can measure performance.
Driving Organizational Performance
Whats Vision
Business Strategy
On the other side, the cultural strategy
determines how the organization achieves its
vision. For example, will product innovation
drive the organization, or is customer orientation
more important? When senior leaders define
values, they describe the organization’s
fundamental beliefs about how people work with
one another to meet goals.
Put all these things in place and you have strategic
focus. However, to implement the strategies, you
still need two integrated systems:
• Business planning
Hows
• Performance management
Cultural Strategy

Business planning identifies short-term plans for

Critical Success
Factors
Business Planning (yearly)
Performance
Objectives
Measurement / Performance Management
Senior leaders first define the vision, the desired
future state. Then they agree on two strategies—a
business one and a cultural one—to work toward the
vision. Let’s look at the business side first.
Usually a long-term plan (3–5 years), a business
strategy guides decisions about your
organization’s markets, products, customers,
people, sales, and delivery distribution. Critical
success factors are the make-or-break factors
your organization must focus on to move toward
its vision (for example, improving customer
retention or increasing speed to market).
Values achieving specific goals that support the
organization’s longer-term strategies. Each
business unit develops plans for its function,
Dimensions/ division, plant, or department then communicates
Competencies
those plans to everyone in the unit.
The performance management system takes
those plans to the street, so to speak. People set
their individual objectives that will contribute to
meeting the business unit plans. They also choose
competencies and behaviors they’ll need to
demonstrate to achieve those objectives.
Here’s how the performance management system
helps keep score at the individual level. By getting
employees to agree on and measure their objectives
(whats) and competencies (hows), the organization
aligns its efforts and establishes a balanced
measurement system for all employees. The
behaviors used (hows) drive the results achieved
(whats). For example, a person has an objective of
increasing customer satisfaction ratings. If this
employee follows behaviors such as seeking to

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Maximizing Performance
DEVELOPMENT DIMENSIONS INTERNATIONAL

understand customers, taking action to meet
customer needs and concerns, and setting up
customer feedback systems, then that person will
most likely achieve the objective. The individual
also will be living the organization’s value of
customer service focus.
Once the vision, values, strategies, business
planning, and performance management system are
in place, you have aligned organizational efforts and
are ready to start tracking progress.
The Balanced Scorecard
The point of the balanced scorecard, of course, is to
measure organizational performance from more
than one view. At DDI our performance
management system measures progress on specific
objectives and competencies—but that’s only part
of the picture. We also need to track progress on
business and cultural strategies.
Leaders typically do well measuring the whats, or
outputs. Revenue growth, return on investment,
and profit are relatively easy to measure, but they’re
lag indicators. They show where the organization
has been but often don’t indicate what’s really
driving the results. That’s where lead indicators
come in. These measures track the things that drive
future performance.
The key to the balanced scorecard is determining
how the lead indicators affect the lag indicators.
Once you do that, you can measure organizational
progress accurately and then manage organizational
performance. At DDI we learned that creating the
right set of balanced measures isn’t easy, but the
effort pays off. It forces leaders to reexamine their
assumptions about what really drives performance
in the organization. The information from the
scorecard also allows leaders to adjust strategies,
thus making it a useful management tool.
We found that each of the four general areas of the
scorecard helps paint the big picture:
• Financial measures summarize the economic
consequences of actions already taken as well as
whether the organizational strategy improved
the bottom line.
• Customer measures address retention,
satisfaction, acquisition, profitability, and
market and account shares in targeted segments.
• Internal business process measures look at
product design and development, operations,
and after-sale service.
• Learning and growth measures deal with
people, systems, and the organizational culture.
What are the right measures for your organization?
That all depends on your business strategy. The
following graphic shows some of the measures on
DDI’s scorecard. A balanced measurement system
helps clarify cause-effect relationships and includes
a mix of outcome measures (lag indicators) and
performance drivers (lead indicators). By looking
at several measures simultaneously, you see a
comprehensive view of the business.

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Maximizing Performance
DEVELOPMENT DIMENSIONS INTERNATIONAL

A Sampling of DDI’s Balanced Scorecard

Measurements
Strategies Lag Indicators Lead Indicators
Financial Ensure prudent debt management • Profit margin • Accounts receivable—days
sales outstanding
• Credit line use

Customer Increase customer loyalty • Customer retention rate • Customer satisfaction with:
– Products/Services
– Ease of doing business
– Relationship

Internal Increase speed to market of • Percentage performance to • Achievement of

Business products and services target launch dates interim milestones for
Process development projects

Learning Attract, develop, and retain high- • Associate retention/ • Associate satisfaction with:
and Growth caliber associates turnover statistics – Hiring and promotion
process
– Training and development
opportunities
– Culture

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DEVELOPMENT DIMENSIONS INTERNATIONAL

10 Lessons Learned 2. Make sure strategies are distinct and

exclusive. In one case at DDI, the same
Designing your own balanced scorecard is almost
measures were suggested for two different
like embarking on a journey to some far-off, exotic
strategies. Sales growth by segment seemed to
location through unknown territory: It sounds like a
be a valid measure for both our market
great place to go, but you’re not exactly sure how to
segmentation strategy (a customer performance
get there. Getting directions from someone who’s
measure) and our sales force distribution
already been there can comfort and guide you on the
strategy (an internal process measure). We
trip. In DDI’s first two years with the scorecard,
wondered: Were both strategies needed if they
we’ve hit roadblocks but also tried some approaches
really meant the same thing? By exploring this
that accelerated our progress. Here are our tips for
dilemma, we realized the best solution was to
your journey.
keep the strategies but modify the measures to
distinguish between market segment growth (for
1. Make each strategy clear and ensure
example, in national, key, and primary
everyone has the same understanding of it.
accounts) and sales force effectiveness (for
The best way to clarify a strategy is to define
example, inside sales vs. field sales
how to measure it. During some of our initial
performance).
discussions, different measures were suggested
for the same strategy. People had different
3. Make sure strategies are right for the
interpretations of what the strategy was. For
business. Defining measures for a strategy
instance, we started with a strategy of
might lead you to question the strategy itself.
developing a wide range of integrated solutions
We can’t understate the importance of the
across our core technologies. When we
discovery process that goes along with defining
discussed measurement, we discovered some
measures. At various times we questioned a
were interpreting this strategy as a measure of
strategy because of our discussion of measures
our research and development process (new
(Is the strategy right for us? Do we need it?),
products/services we developed were
and we made changes accordingly.
integrated); others, a measure of the sales
process (we were selling more integrated 4. Make sure measures are need-to-haves, not
solutions). We eventually reworked the strategy nice-to-haves. Even with today’s technology
to focus on the selling of integrated solutions, and information systems, measures take time
then we incorporated the research and to collect, analyze, and manage. Select only
development measure in a more appropriate those considered strategically important—ones
area. By getting consensus on the measures, we that will help make a decision about the
gained common understanding and commitment business. Measures take too much time and
to the strategies. energy to be less than critical. We decided to
eliminate about half of the measures we
brainstormed in initial sessions.

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DEVELOPMENT DIMENSIONS INTERNATIONAL
5. Choose measures at the proper level. Some
measures are useful on the organizational level.
Others are more appropriate for the business
unit level. Make sure you don’t overwhelm
your strategic leaders with measures that aren’t
at the overall level. They need to see only big-
picture measures, not results that might, for
example, be very specific and useful only to a
certain business unit or geographic region.
Performance of individual salespeople (for
example, number of sales calls) might serve as
an appropriate lead indicator for the regional
sales leadership teams, but such information
provides unnecessary detail at the executive
level. For international businesses detailed,
country-by-country information is less useful to
senior executives than measures having global
impact. Win/Loss analysis is important but
perhaps not at the product level, which would be
a product management issue.
6. Set objectives and stretch goals. Establishing
a measure is not enough. Depending on the
amount of change desired and the relative
importance of the strategy, set a reasonably
achievable objective or a stretch goal. You
need to set a direction and pace in order to
influence behavior. For example, a
commitment to reduce cycle time by 40 percent
requires a much more innovative approach to
the product development process than a
continuous improvement goal
of 10 percent cycle time reduction.
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Maximizing Performance
7. Do something, even if only to establish a
baseline. Don’t let lack of data or a
complicated process dictate whether or not you
measure something. If it’s important, measure
it. As an example, product development cycle
time can be a real measurement challenge. The
common argument is how can you use the same
set of measures when the complexity of the
development process varies significantly from
project to project. By clarifying the standard
stages of the development process (product
specifications, design, development, field
testing, final production, and launch/education)
and identifying major milestones to be achieved,
we are able to create baselines and establish
cycle time improvement goals for similar types
of projects.
8. Make sure metric owners are committed to
their roles. Metric owners might find it
challenging to add measurement responsibilities
to an already full plate. Establishing measures
can take a while. If people don’t buy into their
ownership of the measurement, you can find
your rollout delayed unnecessarily. At DDI we
acknowledge the role that others play in
gathering and analyzing data but hold the
executive-level metric owners accountable for
reporting results and implications.
DEVELOPMENT DIMENSIONS INTERNATIONAL

9. Avoid too many overall measures. Selecting And the Score Is . . .

the right measures is challenging. Add the
The balanced scorecard has worked well for DDI.
complexities and time commitments of tracking
Its approach has helped communicate strategic
multiple measures, and you have a near
direction and drive performance throughout the
dilemma on your hands. It becomes
organization. We’ve found that when used
overwhelming and difficult to implement and
correctly and with vigor, it can focus organizational
manage. Try to limit the number of overall
energy on what’s important—the achievement of
measures to a manageable but important few.
business and cultural strategies. It allows DDI’s
Our initial scorecard had more than 100
leaders to use measurement as a strategic
measures. Through a process of elimination and
management tool to adjust business strategies as
prioritization, we have whittled it to 23 that we
needed for future success and to answer the tough
review quarterly or semiannually and 35 that we
questions.
review annually. These include a mixture of
lead and lag indicators. We are continuing to
Karen Colteryahn is client loyalty manager
reduce the overall number of measures as we
for Development Dimensions International
get more comfortable that the ones we monitor
and facilitates DDI’s internal use of the
are appropriately reporting the effectiveness of
balanced scorecard.
the strategies.
Patty Davis is performance management leader
10. Remember, the process is evolving. From its
for Development Dimensions International and
initial design to establishment of measures to
helps DDI’s clients implement performance
implementation of data reviews, your scorecard
management systems.
has a constant need for updates and revisions.
Although DDI reviews results for our scorecard
References
quarterly, we keep a watchful eye on the need to
Kaplan, R.S., & Norton, D.P. (1996). The
make revisions to it. We look at the scorecard
Balanced Scorecard. Cambridge, MA: Harvard
as an ever-changing, dynamic document and
Business Press.
process that we continually refine as we get
information on cause-and-effect relationships.
Rogers, R.W., Hayden, J.W., & Ferketish, J.B., with
It’s all for constant improvement and learning.
Matzen, R. (1997). Organizational Change That
Works. Pittsburgh, PA: DDI Press.

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