Focusing Your Organization on Strategy—With the Balanced Score- Card, 2Nd Edition Putting the Balanced Scorecard to Work

C O L L E C T I O N www.hbr.org

Focusing Your Organization

Your strategy’s on Strategy—with the brilliant—but can you execute it? Balanced Scorecard, 2nd Edition

Included with this collection: 2 Putting the Balanced Scorecard to Work by Robert S. Kaplan and David P. Norton 19 Measuring the Strategic Readiness of Intangible Assets by Robert S. Kaplan and David P. Norton 35 Using the Balanced Scorecard as a Strategic Management System by Robert S. Kaplan and David P. Norton 49 Having Trouble with Your Strategy? Then Map It by Robert S. Kaplan and David P. Norton

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Collection Overview The Articles The Balanced Scorecard has transformed 3 Article Summary companies around the globe. This revolutionary performance management sys- 4 Putting the Balanced Scorecard to Work by Robert S. Kaplan and David P. Norton tem has been helping top executives set Your Balanced Scorecard provides a top-down description of your company’s strategy and corporate strategy and objectives—and your assumptions about the corporate objectives and measures needed to implement that translate them into a coherent set of mea- strategy. sures—since 1992. To begin building your scorecard, ask: “If we successfully implement our strategy, how will What makes the Balanced Scorecard so we look different to our shareholders and customers? How will our internal processes powerful? It transforms strategy into a change? What will happen to our ability to innovate and grow? What are each scorecard perspective’s critical success factors? What metrics will tell us whether we’re addressing continuous process owned by every em- those factors as planned?” ployee, not just top managers. It also enables you to communicate high-level 18 Further Reading goals down to all organizational levels. Employees know not only what to do, but 20 Article Summary why. 21 Measuring the Strategic Readiness of Intangible Assets But most important, the Balanced Score- by Robert S. Kaplan and David P. Norton card doesn’t treat strategy from only a fi- It’s not enough to clarify your strategy; you must measure your intangible assets’ strategic nancial perspective; it augments financial readiness—how well your employees’ skills, information and technical systems, and leader- measures with objectives and metrics in ship and culture align with your strategy. These intangible assets directly enhance the internal processes that generate revenue needed to meet your long-term financial goals. three additional “perspectives”—customer relationships, internal processes, To measure strategic readiness, identify the intangible assets you need to perform the inter- and learning and growth. nal processes most critical to your strategy. Then assess your current capabilities in all these areas, identifying changes needed to improve alignment. These less tangible areas are notoriously 34 Further Reading difficult to measure and influence. In VED. 2004, Robert Kaplan and David Norton augmented the Scorecard methodology 36 Article Summary to include new tools that enable you to 37 Using the Balanced Scorecard as a Strategic Management System further unleash the power of intangible by Robert S. Kaplan and David P. Norton ALL RIGHTS RESER assets. In the article “Measuring the Strate- You’ve defined strategic objectives and measures and measured your intangible assets’ stra-

TION. gic Readiness of Intangible Assets,” they tegic readiness. Now link employees’ everyday actions to your company’s long-term goals: A

OR describe how to assess how prepared translate your vision into metrics everyone can understand; communicate high-level goals

ORP and link them to individual performance and compensation; and use scorecard data to test your company’s people, systems, and cul- and revise your theories about which actions generate which results. ture are to carry out your strategy—and turn it into long-term tangible results. 48 Further Reading

OL PUBLISHING C The four articles in this collection, all writ- Article Summary ten by Kaplan and Norton, give you the 50 tools to start building and using a Bal- 51 Having Trouble with Your Strategy? Then Map It anced Scorecard in your firm. by Robert S. Kaplan and David P. Norton BUSINESS SCHO

D To execute your strategy, you must communicate it throughout your organization so em- R A

V ployees see how their everyday actions support—or hamper—the strategy. How to send a clear, compelling message? Use a strategy map—a one-page, graphic depiction of the cause-and-effect connections among your Balanced Scorecard’s four perspectives. Concise and clear, your strategy map tells employees throughout your organization how to turn resources (especially intangible ones) into the tangible results promised by your strategy.

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1st article from the collection: Focusing Your Organization on Strategy—with the Balanced Score- card, 2nd Edition Putting the Balanced Scorecard to Work

by Robert S. Kaplan and David P. Norton

Included with this full-text Harvard Business Review article:

3 Article Summary The Idea in Brief—the core idea The Idea in Practice—putting the idea to work

4 Putting the Balanced Scorecard to Work

18 Further Reading A list of related materials, with annotations to guide further exploration of the article’s ideas and applications

Product 4118

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Putting the Balanced Scorecard to Work

The Idea in Brief The Idea in Practice What makes a balanced scorecard special? Linking measurements to strategy is the heart Example: Four characteristics stand out: of a successful scorecard development pro- Rockwater, an underwater engineering and cess. The three key questions to ask here: construction firm, crafted a five-pronged 1. It is a top-down reflection of the com- strategy: to provide services that surpassed pany’s mission and strategy. By contrast, 1. If we succeed with our vision and customers’ expectations and needs; to the measures most companies track are strategy, how will we look different achieve high levels of customer satisfaction; bottom-up: deriving from local activities or • to our shareholders and customers? to make continuous improvements in ad hoc processes, they are often irrelevant safety, equipment reliability, responsive- to the overall strategy. • in terms of our internal processes? ness, and cost effectiveness; to recruit and 2. It is forward-looking. It addresses cur- • in terms of our ability to innovate and retain high-quality employees; and to real- rent and future success. Traditional financial grow? ize shareholder expectations. Using the bal- measures describe how the company per- anced scorecard, Rockwater’s senior man- 2. What are the critical success factors in formed during the last reporting period— agement translated this strategy into each of the four scorecard perspectives? without indicating how managers can im- tangible goals and actions. prove performance during the next. 3. What are the key measurements that • The financial measures they chose in- will tell us whether we’re addressing those 3. It integrates external and internal mea- cluded return-on-capital employed and success factors as planned? sures. This helps managers see where they cash flow, because shareholders had indi- have made trade-offs between perfor- The balanced scorecard also brings an organi- cated a preference for short-term results. mance measures in the past, and helps en- zational focus to the variety of local change • Customer measures focused on those sure that future success on one measure programs under way in a company at any clients most interested in a high value- does not come at the expense of another. given time. As the benchmark against which added relationship. all new projects are evaluated, the scorecard 4. It helps you focus. Many companies • The company introduced new bench- functions as more than just a measurement track more measures than they can possi- marks that emphasized the integration system. In the words of FMC Corp. executive bly use. But a balanced scorecard requires of key internal processes. It also added Larry Brady, it becomes “the cornerstone of managers to reach agreement on only a safety index as a means of controlling the way you run the business,” that is, “the those measures that are most critical to the indirect costs associated with accidents. core of the management system” itself. success of the company's strategy. Fifteen • Learning and growth targets emphasized to twenty distinct measures are usually the percentage of revenue coming from enough, each measure custom-designed new services and the rate of improve- for the unit to which it applies. ment of safety and rework measures. COPYRIGHT © 2000 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

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What do companies like Rockwater, Apple Computer, and Advanced Micro Devices have in common? They’re using the scorecard to measure performance and set strategy.

Putting the Balanced Scorecard to Work

by Robert S. Kaplan and David P. Norton

Today’s managers recognize the impact that a measurement exercise, the balanced score- measures have on performance. But they card is a management system that can moti- rarely think of measurement as an essential vate breakthrough improvements in such criti- part of their strategy. For example, executives cal areas as product, process, customer, and may introduce new strategies and innovative market development. operating processes intended to achieve The scorecard presents managers with four breakthrough performance, then continue to different perspectives from which to choose use the same short-term financial indicators measures. It complements traditional financial they have used for decades, measures like re- indicators with measures of performance for turn-on-investment, sales growth, and operat- customers, internal processes, and innovation ing income. These managers fail not only to and improvement activities. These measures introduce new measures to monitor new goals differ from those traditionally used by compa- and processes but also to question whether or nies in a few important ways: not their old measures are relevant to the new Clearly, many companies already have myr- initiatives. iad operational and physical measures for local Effective measurement, however, must be activities. But these local measures are bottom- an integral part of the management process. up and derived from ad hoc processes. The The balanced scorecard, first proposed in the scorecard’s measures, on the other hand, are January-February 1992 issue of HBR (“The Bal- grounded in an organization’s strategic objec- anced Scorecard—Measures that Drive Perfor- tives and competitive demands. And, by re- mance”), provides executives with a compre- quiring managers to select a limited number of hensive framework that translates a critical indicators within each of the four per- company’s strategic objectives into a coherent spectives, the scorecard helps focus this strate- set of performance measures. Much more than gic vision. COPYRIGHT © 1993 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

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In addition, while traditional financial mea- 1970s, we were a bunch of guys in wet suits sures report on what happened last period diving off barges into the North Sea with without indicating how managers can improve burning torches,” Chambers said. But compe- performance in the next, the scorecard func- tition in the subsea contracting business had tions as the cornerstone of a company’s cur- become keener in the 1980s, and many rent and future success. smaller companies left the industry. In addi- Moreover, unlike conventional metrics, tion, the focus of competition had shifted. the information from the four perspectives Several leading oil companies wanted to de- provides balance between external measures velop long-term partnerships with their sup- like operating income and internal measures pliers rather than choose suppliers based on like new product development. This balanced low-price competition. set of measures both reveals the trade-offs that With his senior management team, Cham- managers have already made among perfor- bers developed a vision: “As our customers’ mance measures and encourages them to preferred provider, we shall be the industry achieve their goals in the future without mak- leader in providing the highest standards of ing trade-offs among key success factors. safety and quality to our clients.” He also de- Finally, many companies that are now at- veloped a strategy to implement the vision. tempting to implement local improvement The five elements of that strategy were: ser- programs such as process reengineering, total vices that surpass customers’ expectations and quality, and employee empowerment lack a needs; high levels of customer satisfaction; sense of integration. The balanced scorecard continuous improvement of safety, equip- can serve as the focal point for the organiza- ment reliability, responsiveness, and cost ef- tion’s efforts, defining and communicating pri- fectiveness; high-quality employees; and real- orities to managers, employees, investors, even ization of shareholder expectations. Those customers. As a senior executive at one major elements were in turn developed into strate- company said, “Previously, the one-year bud- gic objectives (see the chart “Rockwater’s get was our primary management planning de- Strategic Objectives”). If, however, the strate- vice. The balanced scorecard is now used as gic objectives were to create value for the the language, the benchmark against which all company, they had to be translated into tangi- new projects and businesses are evaluated.” ble goals and actions. The balanced scorecard is not a template Rockwater’s senior management team that can be applied to businesses in general or transformed its vision and strategy into the even industrywide. Different market situa- balanced scorecard’s four sets of performance tions, product strategies, and competitive envi- measures (see the chart “Rockwater’s Bal- ronments require different scorecards. Busi- anced Scorecard”): ness units devise customized scorecards to fit Financial Measures: The financial perspec- their mission, strategy, technology, and cul- tive included three measures of importance to ture. In fact, a critical test of a scorecard’s suc- the shareholder. Return-on-capital-employed cess is its transparency: from the 15 to 20 score- and cash flow reflected preferences for short- card measures, an observer should be able to term results, while forecast reliability signaled see through to the business unit’s competitive the corporate parent’s desire to reduce the his- strategy. A few examples will illustrate how torical uncertainty caused by unexpected vari- the scorecard uniquely combines management ations in performance. Rockwater manage- and measurement in different companies. ment added two financial measures. Project profitability provided focus on the project as Rockwater: Responding to a the basic unit for planning and control, and Changing Industry sales backlog helped reduce uncertainty of Rockwater, a wholly owned subsidiary of performance. Robert S. Kaplan is the Arthur Lowes Brown & Root/Halliburton, a global engineer- Customer Satisfaction: Rockwater wanted Dickinson Professor of Accounting at ing and construction company, is a worldwide to recognize the distinction between its two the Harvard Business School. David P. leader in underwater engineering and con- types of customers: Tier I customers, oil com- Norton is founder and president of Re- struction. Norman Chambers, hired as CEO in panies that wanted a high value-added rela- naissance Strategy Group, a consulting late 1989, knew that the industry’s competi- tionship, and Tier II customers, those that firm located in Lincoln, Massachusetts. tive world had changed dramatically. “In the chose suppliers solely on the basis of price. A harvard business review • september–october 1993 page 5

Putting the Balanced Scorecard to Work

price index, incorporating the best available been satisfied). Measures were formulated for intelligence on competitive position, was in- each of the five business-process phases in this cluded to ensure that Rockwater could still re- project cycle (see the chart “How Rockwater tain Tier II customers’ business when required Fulfills Customer Needs”): by competitive conditions. • Identify: number of hours spent with pros- The company’s strategy, however, was to pects discussing new work; emphasize value-based business. An indepen- • Win: tender success rate; dent organization conducted an annual survey • Prepare and Deliver: project performance to rank customers’ perceptions of Rockwater’s effectiveness index, safety/loss control, rework; services compared to those of its competitors. • Closeout: length of project closeout cycle. In addition, Tier I customers were asked to The internal business measures emphasized supply monthly satisfaction and performance a major shift in Rockwater’s thinking. For- ratings. Rockwater executives felt that imple- merly, the company stressed performance for menting these ratings gave them a direct tie to each functional department. The new focus their customers and a level of market feedback emphasized measures that integrated key busi- unsurpassed in most industries. Finally, mar- ness processes. The development of a compre- ket share by key accounts provided objective hensive and timely index of project perfor- evidence that improvements in customer satis- mance effectiveness was viewed as a key core faction were being translated into tangible competency for the company. Rockwater felt benefits. that safety was also a major competitive factor. Internal Processes: To develop measures of Internal studies had revealed that the indirect internal processes, Rockwater executives de- costs from an accident could be 5 to 50 times fined the life cycle of a project from launch the direct costs. The scorecard included a safety (when a customer need was recognized) to index, derived from a comprehensive safety completion (when the customer need had measurement system, that could identify and

Rockwater’s Strategic Objectives

Return on Capital Cash Flow Project Profitability The Vision

Financial Reliability of Performance

Value for Money Tier I Competitive Price Tier II “As our customers’ Strategy Hassle-Free Relationship preferred provider, High-Performance Professionals Innovation we shall be the Customer industry leader. Services that Surpass Needs This is our mission.” Shape Customer Requirement Tender Effectiveness Customer Satisfaction Quality Service Safety/Loss Control

Continuous Improvement Internal Superior Project Management

Quality of Employees Continuous Improvement

Shareholder Expectations Product and Service Innovation

Growth Empowered Work Force

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classify all undesired events with the potential ternal work processes. The first objective was for harm to people, property, or process. measured by percent revenue from new ser- The Rockwater team deliberated about the vices and the second objective by a continuous choice of metric for the identification stage. It improvement index that represented the rate recognized that hours spent with key prospects of improvement of several key operational discussing new work was an input or process measures, such as safety and rework. But in measure rather than an output measure. The order to drive both product/service innovation management team wanted a metric that and operational improvements, a supportive would clearly communicate to all members of climate of empowered, motivated employees the organization the importance of building was believed necessary. A staff attitude survey relationships with and satisfying customers. and a metric for the number of employee sug- The team believed that spending quality time gestions measured whether or not such a cli- with key customers was a prerequisite for in- mate was being created. Finally, revenue per fluencing results. This input measure was de- employee measured the outcomes of em- liberately chosen to educate employees about ployee commitment and training programs. the importance of working closely to identify The balanced scorecard has helped Rockwa- and satisfy customer needs. ter’s management emphasize a process view of Innovation and Improvement: The inno- operations, motivate its employees, and incor- vation and learning objectives are intended to porate client feedback into its operations. It drive improvement in financial, customer, developed a consensus on the necessity of cre- and internal process performance. At Rockwa- ating partnerships with key customers, the im- ter, such improvements came from product portance of order-of-magnitude reductions in and service innovation that would create new safety-related incidents, and the need for im- sources of revenue and market expansion, as proved management at every phase of multi- well as from continuous improvement in in- year projects. Chambers sees the scorecard as

Rockwater’s Balanced Scorecard

Financial Perspective

Return-on-Capital-Employed Cash Flow Project Profitability Profit Forecast Reliability Sales Backlog

Customer Perspective Internal Business Perspective

Pricing Index Tier II Customers Hours with Customers on New Work Customer Ranking Survey Tender Success Rate Customer Satisfaction Index Rework Market Share Safety Incident Index Business Segment, Tier I Customers, Project Performance Index Key Accounts Project Closeout Cycle

Innovation and Learning Perspective % Revenue from New Services Rate of Improvement Index Staff Attitude Survey # of Employee Suggestions Revenue per Employee

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an invaluable tool to help his company ulti- few key competencies: for example, user- mately achieve its mission: to be number one friendly interfaces, powerful software archi- in the industry. tectures, and effective distribution systems. However, senior executives recognized that Apple Computer: Adjusting Long- measuring performance along these compe- Term Performance tency dimensions could be difficult. As a re- Apple Computer developed a balanced score- sult, the company is currently experimenting card to focus senior management on a strat- with obtaining quantitative measures of these egy that would expand discussions beyond hard-to-measure competencies. gross margin, return on equity, and market Employee Commitment and Alignment: share. A small steering committee, intimately Apple conducts a comprehensive employee familiar with the deliberations and strategic survey in each of its organizations every two thinking of Apple’s Executive Management years; surveys of randomly selected employees Team, chose to concentrate on measurement are performed more frequently. The survey categories within each of the four perspectives questions are concerned with how well em- and to select multiple measurements within ployees understand the company’s strategy as each category. For the financial perspective, well as whether or not they are asked to de- Apple emphasized shareholder value; for the liver results that are consistent with that strat- customer perspective, market share and cus- egy. The results of the survey are displayed in tomer satisfaction; for the internal process terms of both the actual level of employee re- perspective, core competencies; and, finally, sponses and the overall trend of responses. for the innovation and improvement perspec- Market Share: Achieving a critical thresh- tive, employee attitudes. Apple’s manage- old of market share was important to senior ment stressed these categories in the follow- management not only for the obvious sales ing order: growth benefits but also to attract and retain Customer Satisfaction: Historically, Apple software developers to Apple platforms. had been a technology- and product-focused Shareholder Value: Shareholder value is in- company that competed by designing better cluded as a performance indicator, even computers. Customer satisfaction metrics are though this measure is a result—not a just being introduced to orient employees to- driver—of performance. The measure is in- ward becoming a customer-driven company. cluded to offset the previous emphasis on J.D. Power & Associates, a customer-survey gross margin and sales growth, measures that company, now works for the computer indus- ignored the investments required today to try. However, because it recognized that its generate growth for tomorrow. In contrast, customer base was not homogeneous, Apple the shareholder value metric quantifies the felt that it had to go beyond J.D. Power & As- impact of proposed investments for business sociates and develop its own independent sur- creation and development. The majority of veys in order to track its key market segments Apple’s business is organized on a functional around the world. basis—sales, product design, and worldwide Core Competencies: Company executives manufacturing and operations—so share- wanted employees to be highly focused on a holder value can be calculated only for the entire company instead of at a decentralized level. The measure, however, helps senior managers in each major organizational unit How Rockwater Fulfills Customer Needs assess the impact of their activities on the entire company’s valuation and evaluate new business ventures. While these five performance indicators Customer #1 #2 #3 #4 #5 Customer have only recently been developed, they have Need Identify Win Prepare Perform Closeout Need helped Apple’s senior managers focus their Recognized Met strategy in a number of ways. First of all, the Development Supply Cycle balanced scorecard at Apple serves primarily Cycle as a planning device, instead of as a control device. To put it another way, Apple uses the

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Building a Balanced Scorecard

Each organization is unique and so input on the company’s strategic ob- 4. Interviews: Second Round follows its own path for building a jectives and tentative proposals for The facilitator reviews, consolidates, balanced scorecard. At Apple and balanced scorecard measures. The fa- and documents the output from the AMD, for instance, a senior finance cilitator may also interview some executive workshop and interviews or business development executive, principal shareholders to learn about each senior executive about the ten- intimately familiar with the strategic their expectations for the business tative balanced scorecard. The facili- thinking of the top management unit’s financial performance, as well tator also seeks opinions about is- group, constructed the initial score- as some key customers to learn sues involved in implementing the card without extensive delibera- about their performance expecta- scorecard. tions. At Rockwater, however, senior tions for top-ranked suppliers. management had yet to define 5. Executive Workshop: Second sharply the organization’s strategy, 3. Executive Workshop: First Round much less the key performance levers Round A second workshop, involving the se- that drive and measure the strategy’s The top management team is nior management team, their direct success. brought together with the facilitator subordinates, and a larger number of Companies like Rockwater can fol- to undergo the process of developing middle managers, debates the orga- low a systematic development plan the scorecard (see the chart “Begin nization’s vision, strategy state- to create the balanced scorecard and by Linking Measurements to Strat- ments, and the tentative scorecard. encourage commitment to the score- egy”). During the workshop, the The participants, working in groups, card among senior and mid-level group debates the proposed mission comment on the proposed measures, managers. What follows is a typical and strategy statements until a con- link the various change programs project profile: sensus is reached. The group then under way to the measures, and start moves from the mission and strategy to develop an implementation plan. 1. Preparation statement to answer the question, “If At the end of the workshop, partici- The organization must first define I succeed with my vision and strat- pants are asked to formulate stretch the business unit for which a top- egy, how will my performance differ objectives for each of the proposed level scorecard is appropriate. In for shareholders; for customers; for measures, including targeted rates of general, a scorecard is appropriate internal business processes; for my improvement. for a business unit that has its own ability to innovate, grow, and im- customers, distribution channels, prove?” 6. Executive Workshop: Third production facilities, and financial Videotapes of interviews with Round performance measures. shareholder and customer represen- The senior executive team meets to tatives can be shown to provide an come to a final consensus on the vi- 2. Interviews: First Round external perspective to the delibera- sion, objectives, and measurements Each senior manager in the business tions. After defining the key success developed in the first two workshops; unit—typically between 6 and 12 ex- factors, the group formulates a pre- to develop stretch targets for each ecutives—receives background mate- liminary balanced scorecard contain- measure on the scorecard; and to rial on the balanced scorecard as well ing operational measures for the identify preliminary action programs as internal documents that describe strategic objectives. Frequently, the to achieve the targets. The team the company’s vision, mission, and group proposes far more than four or must agree on an implementation strategy. five measures for each perspective. program, including communicating The balanced scorecard facilitator At this time, narrowing the choices is the scorecard to employees, integrat- (either an outside consultant or the not critical, though straw votes can ing the scorecard into a manage- company executive who organizes be taken to see whether or not some ment philosophy, and developing an the effort) conducts interviews of ap- of the proposed measures are viewed information system to support the proximately 90 minutes each with as low priority by the group. scorecard. the senior managers to obtain their

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7. Implementation result of this process, for instance, an scorecard measures is prepared for A newly formed team develops an entirely new executive information both top management review and implementation plan for the score- system that links top-level business discussion with managers of decen- card, including linking the measures unit metrics down through shop tralized divisions and departments. to databases and information sys- floor and site-specific operational The balanced scorecard metrics are tems, communicating the balanced measures could be developed. revisited annually as part of the stra- scorecard throughout the organiza- tegic planning, goal setting, and re- tion, and encouraging and facilitat- 8. Periodic Reviews source allocation processes. ing the development of second-level Each quarter or month, a blue book metrics for decentralized units. As a of information on the balanced

Begin by Linking Measurements to Strategy

Statement of Vision What is My 1. Definition of SBU Vision of 2. Mission Statement the Future? 3. Vision Statement

To My Shareholders To My Customers With My Internal With My Ability to If My Vision Management Innovate and Grow Processes Succeeds, How Will I Differ? Financial Customer Internal Innovation Perspective Perspective Perspective and Learning

What Are the Critical Success Factors?

What Are the Critical Measurements? THE BALANCED SCORECARD

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measures to adjust the “long wave” of corpo- Driving the Process of Change rate performance, not to drive operating The experiences of these companies and oth- changes. Moreover, the metrics at Apple, with ers reveal that the balanced scorecard is most the exception of shareholder value, can be successful when it is used to drive the process driven both horizontally and vertically into of change. Rockwater, for instance, came into each functional organization. Considered ver- existence after the merger of two different or- tically, each individual measure can be broken ganizations. Employees came from different down into its component parts in order to cultures, spoke different languages, and had evaluate how each part contributes to the different operating experiences and back- functioning of the whole. Thought of horizon- grounds. The balanced scorecard helped the tally, the measures can identify how, for ex- company focus on what it had to do well in ample, design and manufacturing contribute order to become the industry leader. to an area such as customer satisfaction. In ad- Similarly, Joseph De Feo, chief executive of dition, Apple has found that its balanced Service Businesses, one of the three operating scorecard has helped develop a language of divisions of Barclays Bank, had to transform measurable outputs for how to launch and le- what had been a captive, internal supplier of verage programs. services into a global competitor. The score- The five performance indicators at Apple card highlighted areas where, despite apparent are benchmarked against best-in-class organi- consensus on strategy, there still was consider- zations. Today they are used to build business able disagreement about how to make the plans and are incorporated into senior execu- strategy operational. With the help of the tives’ compensation plans. scorecard, the division eventually achieved consensus concerning the highest priority The scorecard enables Advanced Micro Devices: areas for achievement and improvement and Consolidating Strategic Information identified additional areas that needed atten- managers to see the Advanced Micro Devices (AMD), a semicon- tion, such as quality and productivity. De Feo breadth and totality of ductor company, executed a quick and easy assessed the impact of the scorecard, saying, transition to a balanced scorecard. It already “It helped us to drive major change, to become company operations. had a clearly defined mission, strategy state- more market oriented, throughout our organi- ment, and shared understanding among se- zation. It provided a shared understanding of nior executives about its competitive niche. It our goals and what it took to achieve them.” also had many performance measures from Analog Devices, a semiconductor company, many different sources and information sys- served as the prototype for the balanced score- tems. The balanced scorecard consolidated card and now uses it each year to update the and focused these diverse measures into a targets and goals for division managers. Jerry quarterly briefing book that contained seven Fishman, president of Analog, said, “At the be- sections: financial measures; customer-based ginning, the scorecard drove significant and measures, such as on-time delivery, lead time, considerable change. It still does when we and performance-to-schedule; measures of focus attention on particular areas, such as the critical business processes in wafer fabrica- gross margins on new products. But its main tion, assembly and test, new product develop- impact today is to help sustain programs that ment, process technology development (e.g., our people have been working on for years.” submicron etching precision), and, finally, Recently, the company has been attempting to measures for corporate quality. In addition, integrate the scorecard metrics with hoshin organizational learning was measured by im- planning, a procedure that concentrates an en- posing targeted rates of improvements for key tire company on achieving one or two key ob- operating parameters, such as cycle time and jectives each year. Analog’s hoshin objectives yields by process. have included customer service and new prod- At present, AMD sees its scorecard as a sys- uct development, for which measures already tematic repository for strategic information exist on the company’s scorecard. that facilitates long-term trend analysis for But the scorecard isn’t always the impetus planning and performance evaluation. for such dramatic change. For example, AMD’s scorecard has yet to have a significant impact because company management didn’t

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Putting the Balanced Scorecard to Work

use it to drive the change process. Before turn- Implementing the Balanced ing to the scorecard, senior managers had al- Scorecard at FMC Corporation: An ready formulated and gained consensus for the Interview with Larry D. Brady company’s mission, strategy, and key perfor- FMC Corporation is one of the most diversified mance measures. AMD competes in a single companies in the United States, producing more industry segment. The top 12 managers are in- than 300 product lines in 21 divisions organized timately familiar with the markets, engineer- into 5 business segments: industrial chemicals, ing, technology, and other key levers in this performance chemicals, precious metals, de- segment. The summary and aggregate infor- fense systems, and machinery and equipment. mation in the scorecard were neither new nor Based in Chicago, FMC has worldwide revenues surprising to them. And managers of decen- in excess of $4 billion. tralized production units also already had a Since 1984, the company has realized annual significant amount of information about their returns-on-investment of greater than 15%. Cou- own operations. The scorecard did enable pled with a major recapitalization in 1986, these them to see the breadth and totality of com- returns resulted in an increasing shareholder pany operations, enhancing their ability to be- value that significantly exceeded industrial aver- come better managers for the entire company. ages. In 1992, the company completed a strategic But, on balance, the scorecard could only en- review to determine the best future course to capsulate knowledge that managers in general maximize shareholder value. As a result of that had already learned. review, FMC adopted a growth strategy to com- AMD’s limited success with the balanced plement its strong operating performance. This scorecard demonstrates that the scorecard has strategy required a greater external focus and ap- its greatest impact when used to drive a preciation of operating trade-offs. change process. Some companies link compen- To help make the shift, the company decided sation of senior executives to achieving stretch to use the balanced scorecard. In this interview targets for the scorecard measures. Most are conducted by Robert S. Kaplan, Larry D. Brady, attempting to translate the scorecard into op- executive vice president of FMC, talks about the erational measures that become the focus for company’s experience implementing the score- improvement activities in local units. The card. scorecard is not just a measurement system; it Robert S. Kaplan: What’s the status of the is a management system to motivate break- balanced scorecard at FMC? through competitive performance. Larry D. Brady: Although we are just completing the pilot phase of implementation, I think that the balanced scorecard is likely to be-

The Scorecard’s Impact on External Reporting Several managers have asked whether or transparent vision into a unit’s strategy, has found the outside financial community not the balanced scorecard is applicable to then the information, even the measures leery of the principles that ground the score- external reporting. If the scorecard is indeed being used, might be highly sensitive data card: “We use the scorecard more with our a driver of long-term performance, that could reveal much of value to competi- customers than with our investors. The fi- shouldn’t this information be relevant to the tors. But most important, as a relatively re- nancial community is skeptical about long- investment community? cent innovation, the scorecard would bene- term indicators and occasionally tells us In fact, the scorecard does not translate fit from several years of experimentation about some empirical evidence of a nega- easily to the investment community. A within companies before it becomes a sys- tive correlation between stock prices and at- scorecard makes sense primarily for busi- tematic part of reporting to external constit- tention to total quality and internal pro- ness units and divisions with a well-defined uencies. cesses.” strategy. Most companies have several divi- Even if the scorecard itself were better However, the investment community has sions, each with its own mission and strat- suited to external reporting, at present the begun to focus on some key metrics of new egy, whose scorecards cannot be aggre- financial community itself shows little inter- product performance. Could this be an early gated into an overall corporate scorecard. est in making the change from financial to sign of a shift to strategic thinking? And if the scorecard does indeed provide a strategic reporting. One company president

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Putting the Balanced Scorecard to Work

come the cornerstone of the management sys- could get a more accurate picture of a divi- tem at FMC. It enables us to translate business sion’s economic profitability. unit strategies into a measurement system that At year-end, we rewarded division manag- meshes with our entire system of management. ers who delivered predictable financial perfor- For instance, one manager reported that mance. We had run the company tightly for while his division had measured many operat- the past 20 years and had been successful. But ing variables in the past, now, because of the it was becoming less clear where future growth scorecard, it had chosen 12 parameters as the would come from and where the company key to its strategy implementation. Seven of should look for breakthroughs into new areas. these strategic variables were entirely new We had become a high return-on-investment measurements for the division. The manager company but had less potential for further interpreted this finding as verifying what growth. It was also not at all clear from our fi- many other managers were reporting: the nancial reports what progress we were making scorecard improved the understanding and in implementing long-term initiatives. Ques- consistency of strategy implementation. An- tions from the corporate office about spending other manager reported that, unlike monthly versus budget also reinforced a focus on the financial statements or even his strategic plan, short-term and on internal operations. if a rival were to see his scorecard, he would But the problem went even deeper than lose his competitive edge. that. Think about it. What is the value added It’s rare to get that much enthusiasm among di- of a corporate office that concentrates on mak- visional managers for a corporate initiative. What ing division managers accountable for finan- led you and them to the balanced scorecard? cial results that can be added up across divi- FMC had a clearly defined mission: to be- sions? We combine a business that’s doing well “The diversity of come our customers’ most valued supplier. We with a business that’s doing poorly and have a had initiated many of the popular improve- total business that performs at an average initiatives, each with its ment programs: total quality, managing by ob- level. Why not split the company up into inde- own slogan, created jectives, organizational effectiveness, building pendent companies and let the market reallo- a high-performance organization. But these ef- cate capital? If we were going to create value confusion and mixed forts had not been effective. Every time we by managing a group of diversified companies, promoted a new program, people in each divi- we had to understand and provide strategic signals.” sion would sit back and ask, “How is that sup- focus to their operations. We had to be sure posed to fit in with the six other things we’re that each division had a strategy that would supposed to be doing?’’ give it sustainable competitive advantage. In Corporate staff groups were perceived by addition, we had to be able to assess, through operating managers as pushing their pet pro- measurement of their operations, whether or grams on divisions. The diversity of initia- not the divisions were meeting their strategic tives, each with its own slogan, created con- objectives. fusion and mixed signals about where to If you’re going to ask a division or the cor- concentrate and how the various programs poration to change its strategy, you had better interrelated. At the end of the day, with all change the system of measurement to be con- these new initiatives, we were still asking di- sistent with the new strategy. vision managers to deliver consistent short- How did the balanced scorecard emerge as term financial performance. the remedy to the limitations of measuring only What kinds of measures were you using? short-term financial results? The FMC corporate executive team, like In early 1992, we assembled a task force to most corporate offices, reviews the financial integrate our various corporate initiatives. We performance of each operating division wanted to understand what had to be done dif- monthly. As a highly diversified company that ferently to achieve dramatic improvements in redeploys assets from mature cash generators overall organizational effectiveness. We ac- to divisions with significant growth opportuni- knowledged that the company may have be- ties, the return-on-capital-employed (ROCE) come too short-term and too internally fo- measure was especially important for us. We cused in its business measures. Defining what were one of the few companies to inflation-ad- should replace the financial focus was more just our internal financial measures so that we difficult. We wanted managers to sustain their

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Putting the Balanced Scorecard to Work

search for continuous improvement, but we ers to seek narrow process improvements in- also wanted them to identify the opportunities stead of breakthrough output targets. Focus- for breakthrough performance. ing on achieving outputs forces division When divisions missed financial targets, the managers to understand their industry and reasons were generally not internal. Typically, strategy and help them to quantify strategic division management had inaccurately esti- success through specific output targets. mated market demands or had failed to fore- Could you illustrate the distinction between cast competitive reactions. A new measure- process measures and output measures? ment system was needed to lead operating You have to understand your industry well managers beyond achieving internal goals to to develop the connection between process im- searching for competitive breakthroughs in provements and outputs achieved. Take three the global marketplace. The system would divisional examples of cycle-time measure- have to focus on measures of customer service, ment, a common process measure. market position, and new products that could For much of our defense business, no pre- generate long-term value for the business. We mium is earned for early delivery. And the con- used the scorecard as the focal point for the tracts allow for reimbursement of inventory discussion. It forced division managers to an- holding costs. Therefore, attempts to reduce swer these questions: How do we become our inventory or cycle times in this business pro- customers’ most valued supplier? How do we duce no benefit for which the customer is will- become more externally focused? What is my ing to pay. The only benefits from cycle time division’s competitive advantage? What is its or inventory reduction occur when reduction competitive vulnerability? in factory-floor complexity leads to real reduc- How did you launch the scorecard effort at tions in product cost. The output performance “If you’re going to ask a FMC? targets must be real cash savings, not reduced We decided to try a pilot program. We se- inventory levels or cycle times. division or the lected six division managers to develop proto- In contrast, significant lead-time reductions corporation to change its type scorecards for their operations. Each divi- could be achieved for our packaging machin- sion had to perform a strategic analysis to ery business. This improvement led to lower strategy, you had better identify its sources of competitive advantage. inventory and an option to access an addi- The 15 to 20 measures in the balanced score- tional 35% of the market. In this case, the change the system of card had to be organization-specific and had to cycle-time improvements could be tied to spe- measurement.” communicate clearly what short-term mea- cific targets for increased sales and market sures of operating performance were consis- share. It wasn’t linear, but output seemed to tent with a long-term trajectory of strategic improve each time we improved throughput success. times. Were the six division managers free to develop And in one of our agricultural machinery their own scorecard? businesses, orders come within a narrow time We definitely wanted the division managers window each year. The current build cycle is to perform their own strategic analysis and to longer than the ordering window, so all units develop their own measures. That was an es- must be built to the sales forecast. This process sential part of creating a consensus between of building to forecast leads to high inven- senior and divisional management on operat- tory—more than twice the levels of our other ing objectives. Senior management did, how- businesses—and frequent overstocking and ob- ever, place some conditions on the outcomes. solescence of equipment. Incremental reduc- First of all, we wanted the measures to be tions in lead time do little to change the eco- objective and quantifiable. Division managers nomics of this operation. But if the build cycle were to be just as accountable for improving time could be reduced to less than the six-week scorecard measures as they had been for using ordering time window for part or all of the monthly financial reviews. Second, we wanted build schedule, then a breakthrough occurs. output measures not process-oriented mea- The division can shift to a build-to-order sched- sures. Many of the improvement programs ule and eliminate the excess inventory caused under way were emphasizing time, quality, by building to forecasts. In this case, the bene- and cost measurements. Focusing on T-Q-C fit from cycle-time reductions is a step-func- measurements, however, encourages manag- tion that comes only when the cycle time

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Putting the Balanced Scorecard to Work

drops below a critical level. quantifiable and input- rather than output- So here we have three businesses, three dif- oriented. Several divisions wanted to conduct ferent processes, all of which could have elabo- customer surveys and provide an index of the rate systems for measuring quality, cost, and results. We judged a single index to be of little time but would feel the impact of improve- value and opted instead for harder measures ments in radically different ways. With all the such as price premiums over competitors. diversity in our business units, senior manage- We did conclude, however, that the full cus- ment really can’t have a detailed understand- tomer survey was an excellent vehicle for pro- ing of the relative impact of time and quality moting external focus and, therefore, decided improvements on each unit. All of our senior to use survey results to kick-off discussion at managers, however, understand output tar- our annual operating reviews. gets, particularly when they are displayed with Did you encounter any problems as you historical trends and future targets. launched the six pilot projects? Benchmarking has become popular with a lot At first, several divisional managers were of companies. Does it tie in to the balanced score- less than enthusiastic about the additional card measurements? freedom they were being given from head- Unfortunately, benchmarking is one of quarters. They knew that the heightened visi- those initially good ideas that has turned into a bility and transparency of the scorecard took fad. About 95% of those companies that have away the internal trade-offs they had gained tried benchmarking have spent a lot of money experience in making. They initially inter- and have gotten very little in return. And the preted the increase in visibility of divisional difference between benchmarking and the performance as just the latest attempt by cor- scorecard helps reinforce the difference be- porate staff to meddle in their internal busi- “I see the scorecard as a tween process measures and output measures. ness processes. It’s a lot easier to benchmark a process than to To offset this concern, we designed targets strategic measurement benchmark an output. With the scorecard, we around long-term objectives. We still closely system, not a measure of ask each division manager to go outside their examine the monthly and quarterly statistics, organization and determine the approaches but these statistics now relate to progress in our strategy.” that will allow achievement of their long-term achieving long-term objectives and justify the output targets. Each of our output measures proper balance between short-term and long- has an associated long-term target. We have term performance. been deliberately vague on specifying when We also wanted to transfer quickly the the target is to be accomplished. We want to focus from a measurement system to achiev- stimulate a thought process about how to do ing performance results. A measurement ori- things differently to achieve the target rather entation reinforces concerns about control and than how to do existing things better. The ac- a short-term focus. By emphasizing targets tivity of searching externally for how others rather than measurements, we could demon- have accomplished these breakthrough strate our purpose to achieve breakthrough achievements is called target verification not performance. benchmarking. But the process was not easy. One division Were the division managers able to develop manager described his own three-stage imple- such output-oriented measures? mentation process after receiving our directive Well, the division managers did encounter to build a balanced scorecard: denial—hope it some obstacles. Because of the emphasis on goes away; medicinal—it won’t go away, so output measures and the previous focus on op- let’s do it quickly and get it over with; owner- erations and financial measures, the customer ship—let’s do it for ourselves. and innovation perspectives proved the most In the end, we were successful. We now difficult. These were also the two areas where have six converts who are helping us to spread the balanced scorecard process was most help- the message throughout the organization. ful in refining and understanding our existing I understand that you have started to apply strategies. the scorecard not just to operating units but to But the initial problem was that the man- staff groups as well. agement teams ran afoul of both conditions: Applying the scorecard approach to staff the measures they proposed tended to be non- groups has been even more eye-opening than

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Putting the Balanced Scorecard to Work

our initial work with the six operating divi- just makes the two systems more compatible. sions. We have done very little to define our The scorecard can serve to motivate and evalu- strategy for corporate staff utilization. I doubt ate performance. But I see its primary value as that many companies can respond crisply to its ability to join together what had been the question, “How does staff provide competi- strong but separated capabilities in strategy de- tive advantage?’’ Yet we ask that question velopment and financial control. It’s the oper- every day about our line operations. We have ating performance bridge that corporations just started to ask our staff departments to ex- have never had. plain to us whether they are offering low cost How often do you envision reviewing a divi- or differentiated services. If they are offering sion’s balanced scorecard? neither, we should probably outsource the I think we will ask group managers to re- function. This area is loaded with real poten- view a monthly submission from each of their tial for organizational development and im- divisions, but the senior corporate team will proved strategic capability. probably review scorecards quarterly on a ro- My conversations with financial people in or- tating basis so that we can review up to seven ganizations reveal some concern about the ex- or eight division scorecards each month. panded responsibilities implied by developing Isn’t it inconsistent to assess a division’s strat- and maintaining a balanced scorecard. How egy on a monthly or quarterly basis? Doesn’t such does the role of the controller change as a com- a review emphasize short-term performance? pany shifts its primary measurement system from I see the scorecard as a strategic measure- a purely financial one to the balanced scorecard? ment system, not a measure of our strategy. Historically, we have had two corporate de- And I think that’s an important distinction. partments involved in overseeing business unit The monthly or quarterly scorecard measures performance. Corporate development was in operations that have been configured to be charge of strategy, and the controller’s office consistent with our long-term strategy. kept the historical records and budgeted and Here’s an example of the interaction be- measured short-term performance. Strategists tween the short and the long term. We have came up with five- and ten-year plans, control- pushed division managers to choose measures lers one-year budgets and near-term forecasts. that will require them to create change, for ex- Little interplay occurred between the two ample, penetration of key markets in which groups. But the scorecard now bridges the two. we are not currently represented. We can mea- The financial perspective builds on the tradi- sure that penetration monthly and get valu- tional function performed by controllers. The able short-term information about the ulti- other three perspectives make the division’s mate success of our long-term strategy. Of long-term strategic objectives measurable. course, some measures, such as annual market In our old environment, division managers share and innovation metrics, don’t lend tried to balance short-term profits with long- themselves to monthly updates. For the term growth, while they were receiving differ- most part, however, the measures are calcu- ent signals depending on whether or not they lated monthly. were reviewing strategic plans or budgets. This Any final thoughts on the scorecard? structure did not make the balancing of short- I think that it’s important for companies term profits and long-term growth an easy not to approach the scorecard as the latest fad. trade-off, and, frankly, it let senior manage- I sense that a number of companies are turn- ment off the hook when it came to sharing re- ing to scorecards in the same way they turned sponsibility for making the trade-offs. to total quality management, high-perfor- Perhaps the corporate controller should mance organization, and so on. You hear take responsibility for all measurement and about a good idea, several people on corporate goal setting, including the systems required to staff work on it, probably with some expensive implement these processes. The new corporate outside consultants, and you put in a system controller could be an outstanding system ad- that’s a bit different from what existed before. ministrator, knowledgeable about the various Such systems are only incremental, and you trade-offs and balances, and skillful in report- don’t gain much additional value from them. ing and presenting them. This role does not It gets worse if you think of the scorecard as eliminate the need for strategic planning. It a new measurement system that eventually re-

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Putting the Balanced Scorecard to Work

quires hundreds and thousands of measure- mere record-keeping exercise or the lever to ments and a big, expensive executive informa- streamline and focus strategy that can lead to tion system. These companies lose sight of the breakthrough performance. essence of the scorecard: its focus, its simplic- ity, and its vision. The real benefit comes from Reprint 93505; Harvard Business Review making the scorecard the cornerstone of the OnPoint 4118 To order, see the next page way you run the business. It should be the core or call 800-988-0886 or 617-783-7500 of the management system, not the measure- or go to www.hbr.org ment system. Senior managers alone will determine whether the scorecard becomes a

harvard business review • september–october 1993 page 17

Putting the Balanced Scorecard to Work

Further Reading ARTICLES The Balanced Scorecard: Measures That The Performance Measurement Drive Performance Manifesto by Robert S. Kaplan and David P. Norton by Robert G. Eccles Harvard Business Review Harvard Business Review January–February 1992 January–February 1991 Product no. 4096 Product no. 91103 This article introduced the concept of a bal- Eccles’s main contention echoes that of Ka- anced scorecard to Harvard Business Review plan and Norton: the leading indicators of readers. Traditional performance measure- business performance cannot be found in fi- ment systems focus on control, the authors nancial data alone. More and more managers argue—for example, measuring the number are changing their company’s performance of widgets produced against the number measurement systems to track nonfinancial budgeted. But a balanced scorecard approach measures and reinforce new competitive to performance focuses on vision and strat- strategies. Five activities are essential, writes egy. It provides a comprehensive snapshot of the author: developing an information archi- a business by combining financial measures tecture; putting the technology in place to with metrics for customer satisfaction, key in- support this architecture; aligning bonuses ternal processes, and organizational learning and other new incentives with the system; and growth. drawing on outside resources; and designing an internal process to ensure that the other Using the Balanced Scorecard as a four activities occur. Strategic Management System by Robert S. Kaplan and David P. Norton BOOK Harvard Business Review The Balanced Scorecard: Translating January–February 1996 Strategy into Action Product no. 4126 by Robert S. Kaplan and David P. Norton Harvard Business School Press Traditional management systems that rely 1996 heavily on financial metrics are typically un- Product no. 6513 able to link a company’s long-term strategy with its short-term actions. In their third Har- Developing and using a balanced scorecard To Order vard Business Review article about the bal- helps executives solve what is perhaps their anced scorecard, Kaplan and Norton demon- most central issue: how to implement strat- For reprints, Harvard Business Review strate how the scorecard helps a company egy, particularly one that requires radical OnPoint orders, and subscriptions clarify and update strategy, communicate that change. This book builds on the authors’ three to Harvard Business Review: strategy throughout the company, align unit Harvard Business Review articles, providing ad- Call 800-988-0886 or 617-783-7500. and individual goals with the strategy, link ditional insight into the mechanics of choos- Go to www.hbr.org strategic objectives to long-term targets and ing measures for each of the four scorecard annual budgets, and conduct periodic perfor- perspectives. Extended examples from indus- For customized and quantity orders mance reviews to improve the strategy. In es- tries such as oil, banking, insurance, and retail- of reprints and Harvard Business sence, a balanced scorecard functions best as ing demonstrate how companies have built Review OnPoint products: the cornerstone of a strategic management scorecards tailored to their particular compet- Call Frank Tamoshunas at system. itive challenges and strategic goals. 617-783-7626, or e-mail him at [email protected]

page 18 2nd article from the collection: Focusing Your Organization on Strategy—with the Balanced Score- card, 2nd Edition Measuring the Strategic Readiness of Intangible Assets

by Robert S. Kaplan and David P. Norton

Included with this full-text Harvard Business Review article:

20 Article Summary The Idea in Brief—the core idea The Idea in Practice—putting the idea to work

21 Measuring the Strategic Readiness of Intangible Assets

34 Further Reading A list of related materials, with annotations to guide further exploration of the article’s ideas and applications

Product 5887

page 19 Measuring the Strategic Readiness of Intangible Assets

The Idea in Brief The Idea in Practice You’ve formulated a sound strategy—but To measure your intangible assets’ strategic Determine whether needed systems: can you execute it? To answer that, mea- readiness, determine what human, informa- • are available and operating normally sure the strategic readiness of your intan- tion, and organizational capital your company gible assets: how well your employees’ needs to perform the internal processes most • have been identified and funded but aren’t skills, your information and technical sys- critical to your strategy. Then assess your cur- installed or operational tems, and your leadership and organiza- rent capabilities in all three areas. Finally, iden- • have been identified but not funded tional culture align with your strategy. tify and address gaps. To get the fullest picture of your IC readiness, But how do you measure this alignment? HUMAN CAPITAL combine these qualitative assessments with Using Balanced Scorecard assessment quantitative ones—such as user-satisfaction tools, determine how strongly your intangi- Certain jobs have a particularly significant im- surveys and analyses of IT operations and ble assets enhance the processes—creat- pact on your organization’s ability to perform maintenance costs. ing, producing, and delivering valuable of- the processes most critical to your strategy. ferings to customers—that generate the These strategic job families often employ less ORGANIZATIONAL CAPITAL revenue needed to meet your long-term fi- than 10% of a company’s workforce. Identify nancial goals. the strategic job families in your company, To measure your organizational capital’s (OC) then list the knowledge and skills employees readiness, ask these questions: When you measure your intangible assets’ in those job families require. Watch for gaps • Culture: Which corporate-wide and unit- alignment with your strategy, you more between employees’ required and current ca- specific behaviors and attitudes (for exam- easily see ways to improve each asset’s pabilities. alignment. For example: ple, commitment to customer satisfaction, Example: respect, innovativeness) does executing • Strengthen skills of employees in the Consumer Bank shifted its strategy from your strategy require? most strategically critical jobs—rather promoting individual products to offering • Leadership: What competencies (ability to than all employees. customers one-stop financial-solutions inculcate specific values or encourage shopping. For its critical internal process • Put the right technical systems in place teamwork and accountability) do your “cross-sell the product line,” financial plan- (customer databases, knowledge man- firm’s leaders need to implement strategy? agement systems) to execute your strat- ning was the most crucial job—which re- egy. quired solution selling, relationship man- • Alignment: What communications (town agement, and other fundamental skills. meetings, training programs) and incen- • Cultivate exceptional leaders and a cohe- tives (rewards for meeting personal and The bank estimated it needed 100 skilled fi- sive workforce committed to sharing corporate targets) would help employees nancial planners for effective cross-selling. knowledge and achieving strategic understand the strategy and their roles in But assessments revealed only 40 proficient goals. supporting it? planners. The bank knew where to invest to By assessing and then enhancing the align- improve its human capital’s strategic readi- • Teamwork and knowledge sharing: What ment of your company’s human, informa- ness. must you do to encourage employees to tion, and organizational capital, you un- share their ideas and knowledge with oth- leash those intangible assets’ full power. ers? What formal knowledge management INFORMATION CAPITAL systems would help? To gauge how well your information capital (IC) supports your organization’s strategy, identify the IT systems needed to support each critical internal process. These may include infrastructure (central servers, communication networks), software applications, and managerial expertise (standards, disaster planning, security). COPYRIGHT © 2004 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

page 20 A real—and revolutionary—opportunity lies in studying and assessing how well prepared a company’s people, systems, and culture are to carry out its strategy.

Measuring the Strategic Readiness of Intangible Assets

by Robert S. Kaplan and David P. Norton

How valuable is a company culture that en- An oil well, for example, is almost as valuable ables employees to understand and believe in to a retail firm as it is to an oil exploration cor- their organization’s mission, vision, and core poration because either company could sell it values? What’s the payoff from investing in a swiftly if necessary. But a workforce with a knowledge management system or in a new strong sense of customer service and satisfac- customer database? Is it more important to tion is worth far more to the retailer than it improve the skills of all employees or focus on would be to the oil company. Also, unlike tan- those in just a few key positions? gible assets, intangible assets almost never cre- Measuring the value of such intangible as- ate value by themselves. They need to be com- sets is the holy grail of accounting. Employees’ bined with other assets. Investments in IT, for skills, IT systems, and organizational cultures example, have little value unless comple- are worth far more to many companies than mented with HR training and incentive pro- their tangible assets. Unlike financial and phys- grams. And, conversely, many HR training pro- ical ones, intangible assets are hard for com- grams have little value unless complemented petitors to imitate, which makes them a pow- with modern technology tools. HR and IT in- erful source of sustainable competitive vestments must be integrated and aligned with advantage. If managers could find a way to es- corporate strategy if the organization is to real- timate the value of their intangible assets, they ize their full potential. Indeed, when compa- could measure and manage their company’s nies separate functions like HR and IT organi- competitive position much more easily and ac- zationally, they usually end up with competing curately. silos of technical specialization. The HR de- But that’s simpler said than done. Unlike fi- partment argues for increases in employee nancial and physical assets, intangible assets training, while the IT department lobbies for are worth different things to different people. buying new hardware and software packages. COPYRIGHT © 2004 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

harvard business review • february 2004 page 21 Measuring the Strategic Readiness of Intangible Assets

What’s more, intangible assets seldom af- amounts have been spent on them. fect financial performance directly. Instead, In the following pages, we will draw on the they work indirectly through complex chains concepts and tools of the Balanced Scorecard of cause and effect. Training employees in to present a way to systematically measure the Total Quality Management and Six Sigma, for alignment of the company’s human, informa- instance, should improve process quality. That tion, and organization capital—what we call improvement should then increase customer its strategic readiness—without which even the satisfaction and loyalty—and also create some best strategy cannot succeed. excess resource capacity. But only if the company can transform that loyalty into improved Defining Strategic Readiness sales and margins and eliminate or redeploy In developing the Balanced Scorecard more the excess resources will the investment in than a decade ago, we identified, in its Learn- training pay off. By contrast, the impact of a ing and Growth Perspective, three categories new tangible asset is immediate: When a re- of intangible assets essential for implement- tailer develops a new site, it sees financial ben- ing any strategy: efits from the sales in the newly opened outlet • Human Capital: the skills, talent, and right away. knowledge that a company’s employees pos- Although these characteristics make it im- sess. possible to value intangible assets on a free- • Information Capital: the company’s data- standing basis, they also point the way to a bases, information systems, networks, and new approach for quantifying how intangible technology infrastructure. assets add value to the company. By under- • Organization Capital: the company’s cul- standing the problems associated with valuing ture, its leadership, how aligned its people are intangible assets, we learn that the measure- with its strategic goals, and employees’ ability ment of the value they create is embedded in to share knowledge. the context of the strategy the company is pur- To link these intangible assets to a com- suing. Companies such as Dell, Wal-Mart, or pany’s strategy and performance, we devel- McDonald’s that are following a low-cost strat- oped a tool called the “strategy map,” which egy derive value from Six Sigma and TQM we first introduced in our previous article for training because their strategies are predicated Harvard Business Review, “Having Trouble on continuous process improvement. The with Your Strategy? Then Map It” (Septem- strategy of offering customers integrated solu- ber–October 2000). As the exhibit “The Strat- tions (rather than discrete products) pursued egy Map” shows, intangible assets influence a by Goldman Sachs, IBM Consulting, and the company’s performance by enhancing the in- like requires employees good at establishing ternal processes most critical to creating value and maintaining long-term customer relation- for customers and shareholders. Companies ships. An organization cannot possibly assign a build their strategy maps from the top down, meaningful financial value to an intangible starting with their long-term financial goals asset like “a motivated and prepared work- and then determining the value proposition force” in a vacuum because value can be de- that will deliver the revenue growth specified rived only in the context of the strategy. What in those goals, identifying the processes most the company can measure, however, is critical to creating and delivering that value Robert S. Kaplan ([email protected]) is whether its workforce is properly trained and proposition, and, finally, determining the hu- the Marvin Bower Professor of Leader- motivated to pursue a particular goal. man, information, and organization capital ship Development at Harvard Business Viewed in this light, it becomes clear that the processes require. School in Boston. David P. Norton measuring the value of intangible assets is re- This article focuses on the bottom—the ([email protected]) is the founder ally about estimating how closely aligned foundation—of the map and will show how in- and president of the Balanced Score- those assets are to the company’s strategy. If tangible assets actually determine the perfor- card Collaborative (www.bscol.com) in the company has a sound strategy and if the in- mance of the critical internal processes. Once Lincoln, Massachusetts. This article is tangible assets are aligned with that strategy, that link has been established, it becomes easy based on their book Strategy Maps: then the assets will create value for the organi- to trace the steps back up the map to see ex- Converting Intangible Assets into Tan- zation. If the assets are not aligned with the actly how intangible assets relate to the com- gible Outcomes (Harvard Business strategy or if the strategy is flawed, then intan- pany’s strategy and performance. That, in School Press, 2004). gible assets will create little value, even if large turn, makes it possible to align those assets harvard business review • february 2004 page 22 Measuring the Strategic Readiness of Intangible Assets

The Strategy Map

The strategy map provides a frame- to use to generate sales and loyalty most important to the strategy. The work for linking intangible assets to from targeted customers. This value objectives in this perspective identify shareholder value creation through proposition forms the context in which which jobs (the human capital), which four interrelated perspectives. The ﬁ- the intangible assets create value. The systems (the information capital), and nancial perspective describes the tangi- internal process perspective identifies what kind of climate (the organization ble outcomes of the strategy in tradi- the critical few processes that create capital) are required to support the tional financial terms, such as ROI, and deliver the differentiating cus- value-creating internal processes. shareholder value, profitability, reve- tomer value proposition. At the foun- These intangible assets must be inte- nue growth, and lower unit costs. The dation of the map, we have the learn- grated and aligned with the critical in- customer perspective defines the value ing and growth perspective, which ternal processes. proposition the organization intends identifies the intangible assets that are

Sustained Shareholder Value

Productivity Strategy Revenue Growth Strategy

Financial Improve cost Increase asset Enhance Expand revenue Perspective structure utilization customer value opportunities

Customer Value Proposition . Customer Price Quality Availability Selection Functionality Service Partnership Brand Perspective

Product/Service Attributes Relationship Image

Internal Operations Management Customer Management Innovation Regulatory and Social Process Produce and deliver Enhance customer value Create new products Improve communities Perspective products and services and services and the environment

Creating Strategic Job Strategic IT Organization Fa milies Portfolio Change Agenda Align ment and Readiness

Learning Human Capital Information Capital Organization Capital and Growth • Skills • Systems • Culture Perspective • Training • Databases • Leadership • Knowledge • Networks • Alignment

harvard business review • february 2004 page 23 Measuring the Strategic Readiness of Intangible Assets

with the strategy and measure their contribu- Organization Capital (OC): Organization tion to it. The degree to which the current set capital is perhaps the least understood of the of assets does—or does not—contribute to the intangible assets, and the task of measuring it performance of the critical internal processes is correspondingly difficult. But in looking at determines the strategic readiness of those as- the strategic priorities that companies in our sets and thus their value to the organization. database of Balanced Scorecard implementa- The strategic readiness of each type of intangi- tions used for their organization capital objec- ble asset can be thought of as follows: tives, we found a consistent picture. Success- Human Capital (HC): In the case of human ful companies had a culture in which people capital, strategic readiness is measured by were deeply aware of and internalized the whether employees have the right kind and mission, vision, and core values needed to exe- level of skills to perform the critical internal cute the company’s strategy. These companies processes on the strategy map. The first step in strove for excellent leadership at all levels, estimating HC readiness is to identify the stra- leadership that could mobilize the organiza- tegic job families—the positions in which em- tion toward its strategy. They strove for a clear ployees with the right skills, talent, and knowl- alignment between the organization’s strate- edge have the biggest impact on enhancing gic objectives and individual, team, and de- the organization’s critical internal processes. partmental goals and incentives. Finally, these The next step is to pinpoint the set of specific companies promoted teamwork, especially the competencies needed to perform each of sharing of strategic knowledge throughout those strategic jobs. The difference between the organization. Determining OC readiness, the requirements needed to carry out these we concluded, would involve first identifying jobs effectively and the company’s current ca- the changes in organization capital required pabilities represents a “competency gap” that by the new strategy—what we call the “orga- measures the organization’s HC readiness. nization change agenda”—and then sepa- Information Capital (IC): The strategic rately identifying and measuring the state of readiness of information capital is a measure readiness of the company’s cultural, leader- of how well the company’s strategic IT portfo- ship, alignment, and teamwork objectives. lio of infrastructure and applications supports Strategic readiness is related to the concept the critical internal processes. Infrastructure of liquidity, which accountants use to classify comprises hardware—such as central servers financial and physical assets on a company’s and communication networks—and the man- balance sheet. Accountants divide a firm’s as- agerial expertise—such as standards, disaster sets into various categories, such as cash, ac- planning, and security—required to effec- counts receivable, inventory, property, plant tively deliver and use applications. Two cate- and equipment, and long-term investments. gories of applications, in turn, are built on this These are ordered hierarchically according to infrastructure: Transaction-processing applica- the ease and speed with which they can be tions, such as an ERP system, automate the converted to cash—in other words, according basic repetitive transactions of the enterprise. to the degree of their liquidity. Accounts re- Analytic applications promote analysis, inter- ceivable is more liquid than inventory, and pretation, and sharing of information and both accounts receivable and inventory are knowledge. Either type may or may not be classified as short-term assets since they typi- a transformational application—one that cally convert to cash within 12 months, faster changes the prevailing business model of the than the cash recovery cycle from such illiquid enterprise. Levi’s uses a transformational ap- assets as plant and equipment. Strategic readi- plication to tailor jeans to individual custom- ness does much the same for intangible as- ers. Home Shopping Network uses a transfor- sets—the higher their state of readiness, the mational application to measure the “profits faster they contribute to generating cash. per second” being generated by currently of- fered merchandise. Transformational applica- Human Capital Readiness tions have the most potential impact on stra- All jobs are important to the organization; tegic objectives and require the greatest otherwise, people wouldn’t be hired and paid degree of organization change to deliver their to perform them. Organizations may require benefits. truck drivers, computer operators, production

harvard business review • february 2004 page 24 Measuring the Strategic Readiness of Intangible Assets

Human Capital Readiness at Consumer Bank

Here we can see how human capital at cies needed for each job, and the readiness) but deficient for the two our composite company, Consumer fourth row specifies the number of customer management processes Bank, is linked to its critical strategic people with those skills the company (only 40% and 50% readiness) and for processes and how well the company requires. one of the innovation processes (20% scores in terms of the skills and capa- The bottom row shows how ready readiness). The aggregate measure of bilities it needs. The top row lists the Consumer Bank’s human capital is for 65% human capital readiness (in the internal processes the bank identified its new strategy. Taken together, these red zone) is a weighted average of as critical to delivering its value propo- internal assessments indicate the ex- readiness scores for all seven strategic sition. The second row shows the jobs tent to which the bank actually has the job families. In terms of human capi- that have the greatest influence on capacity it needs. The bank is in excel- tal, this report tells executives how those processes—the strategic job fami- lent shape for its two operations man- quickly they can implement their new lies. The third row lists the competen- agement processes (100% and 90% strategy.

Regulatory . Operations Management Customer Management Innovation and Social

Strategic Minimize Provide rapid Cross-sell the Shift to Understand Develop new Diversify Processes problems response product line appropriate customer products workforce iness School channel segments vard Bus

Strategic Quality Call center Certified Telemarketer Consumer Joint venture Community Job Families manager representative financial marketer manager recruiter planner

Competency • Six Sigma • Customer • Solutions • Phone • Market • Relationship • Community pyright © 2004 Har ublishing Corporation. All rights ublishing reservedCorporation. Co Profile program interaction selling selling research management roots P center • Problem • Relationship • Product-line • Market • Negotiation • Public management • Problem management knowledge communi- relations • E-commerce system management cation • Product-line • Order know-how • Legal system knowledge management • Cross- frameworks • Team system business • Professional building process certification

Overall Assessment Number of Human Required 30 20 100 20 10 30 10 Capital Readiness Strategic Job Readiness 100% 90% 40% 50% 20% 70% 80% 65% x x x ? x

harvard business review • february 2004 page 25 Measuring the Strategic Readiness of Intangible Assets

supervisors, materials handlers, and call cen- to one offering complete financial solutions ter operators and should make it clear that and one-stop shopping to targeted customers. contributions from all these employees can The map for this new strategy identified seven improve organizational performance. But we critical internal processes, one of which was have found that some jobs have a much “cross-sell the product line.” Human resources greater impact on strategy than others. Man- and line executives then identified the finan- agers must identify and focus on the critical cial planner as the job most important to the few that have the greatest impact on success- effective performance of this process. A plan- ful strategy implementation. ning workshop further identified four skills John Bronson, vice president of human re- fundamental to the financial planner’s job: so- sources at Williams-Sonoma, estimates that lutions selling, relationship management, people in only five job families determine 80% product-line knowledge, and professional certi- of his company’s strategic priorities. The exec- fication. For each internal process on its strat- utive team of a chemical company has identi- egy map, Consumer Bank replicated this ap- fied eight job families critical to its strategy of proach, identifying the strategic job families offering customized innovative solutions. and critical competencies each required. The These job families employ, in aggregate, 100 results are summarized in the exhibit “Human individuals—less than 7% of the total work- Capital Readiness at Consumer Bank.” force. Kimberlee Williams, vice president of To take the next step—assessing the current human resources at Unicco, a large integrated capabilities and competencies of each of the facilities-services management company, says employees in each strategic job family—com- that three job families are key to its strategy: panies can draw from a broad range of ap- project managers, who oversee the operations proaches. For example, employees can them- in specific accounts; operations directors, who selves assess how well their current capabilities broaden the relationships within existing ac- fit the job requirements and then discuss those counts; and business development executives, assessments with a mentor or career manager. who help acquire new accounts. These three Alternatively, an assessor can solicit 360-de- job families employ only 215 people, less than gree feedback on employees’ performance 4% of the workforce. By focusing human capi- from their supervisors, peers, and subordi- tal development activities on these critical few nates. From these assessments, employees get individuals, the chemical company, Unicco, a clear understanding of their objectives, and Williams-Sonoma can greatly leverage meaningful feedback on their current levels of their human capital investments. It is sobering skill and performance, and specific recommen- to think that strategic success in these three dations for future personal development. companies is determined by how well they de- Consumer Bank estimated that it needed velop competencies in less than 10% of their 100 trained and skilled financial planners to ex- workforces. ecute the cross-selling process. But in assessing Once a company identifies its strategic job its recent targeted hiring, training, and devel- families, it must define the requirements for opment programs, the bank’s HR group deter- these jobs in considerable detail, a task often mined that only 40 of its financial planners referred to as “job profiling” or “competency had reached a high enough level of profi- profiling.” A competency profile describes the ciency. The bank’s human capital readiness for knowledge, skills, and values required by suc- this piece of the strategy was, therefore, only cessful occupants in the job family. Often, HR 40%, as the exhibit shows. By replicating this managers will interview individuals who best analysis for all its strategic job families, the understand the job requirements to develop a bank learned the state of its human capital competency profile they can use to recruit, readiness and thus whether the organization hire, train, and develop people for that posi- could move forward quickly with its new strat- tion. To see how this might be done, consider egy. Consumer Bank, a composite example distilled from our experiences in working with about a Information Capital Readiness dozen retail banks. Executives must understand how to plan, set Consumer Bank was migrating from its his- priorities for, and manage an information toric strategy of promoting individual products capital portfolio that supports their organiza-

harvard business review • february 2004 page 26 Measuring the Strategic Readiness of Intangible Assets

Information Capital Rea din ess at Consumer Bank The first two rows of the information capital readiness report, like the human capital report, list the company’s critical internal processes and its strategic job families. The remaining five rows specify the various items in the IC portfolio, assigning scores indicating how well developed each item is. In this example, Consumer Bank has the IC portfolio it needs to support innovation but is less able to support the jobs most critical to its customer management and operational excellence goals.

Operations Management Customer Management Innovation

Strategic Minimize Provide rapid Cross-sell the Shift to Understand Develop new Processes problems response product line appropriate customer products channel segments

Strategic Quality Call center Certified Telemarketer Consumer Joint venture Job Families manager representative financial marketer manager planner

Strategic Information Capital Portfolio

Transforma- Customer Customer tional Appli- self-help portfolio self- cations 4 management 4

Analytical Service quality Best-practice Customer Best-practice Customer Best-practice Applications analysis community profitability community profitability community Ratings 2 knowledge 3 knowledge 3 knowledge 1 management management management OK system system system 3 2 2 2 Minor enhance- Transaction- Incident Workforce Integrated CRM/lead Customer Project ments needed Processing tracking scheduling customer file management feedback management Applications 6 3 2 6 2 2 3 New development Problem Problem CRM/order under way management management management 2 2 2 4 New development CRM/sales behind schedule force automation 5 4 Major enhancements required Technology CRM packaged CRM packaged Infrastructure software software 6 2 2 New application required Web enabled Web enabled Web enabled 3 3 3 Computer Computer Computer telephony telephony telephony integration integration integrated 4 4 4 Interactive voice response 3

x x ? x Co Business School Publishing Co harvard business review • february 2004 page 27 Measuring the Strategic Readiness of Intangible Assets

tion’s strategy. As with human capital, the Readiness at Consumer Bank.”) strategy map serves as a starting point for de- The team then turned to assessing the readi- lineating a company’s IC objectives. In the ness of the bank’s existing portfolio of IC infra- case of Consumer Bank, the chief information structure and applications, assigning a numeri- officer led an initiative to identify the specific cal indicator from 1 to 6 to each system. A information capital needs of each of the seven score of 1 or 2 indicates that the system is al- internal processes previously identified as crit- ready available and operating normally, per- ical to the bank’s new value proposition. haps needing only minor enhancements. A For the customer management process score of 3 or 4 indicates that the system has “cross-sell the product line,” the workshop been identified and funded but is not yet in- team identified an application for customers stalled or operational. In other words, current to analyze and manage their portfolios by capability does not yet exist but development themselves (a customer portfolio self-manage- programs are under way to close the gap. A ment system) as a transformational applica- score of 5 or 6 signals that a new infrastructure tion. The workshop team identified an analyti- or application is needed to support the strat- cal application for the same process (a egy, but nothing has yet been done to create, customer profitability system) and a transac- fund, and deliver the capability. Managers re- tion-processing application (an integrated cus- sponsible for the IC development programs tomer file). The internal process “understand provided the subjective judgments for this sim- customer segments” also needed a customer ple measurement system, and the CIO was re- profitability system, as well as a separate sponsible for assessing the integrity of the re- customer feedback system to support market ported numbers. In the IC exhibit, we can also research. The process “shift to appropriate see that Consumer Bank aggregated the readi- channel” required a strong foundation of ness measures of individual applications and transactional systems, including a packaged infrastructure programs—designating them CRM software suite that included modules for green, yellow, or red, based on the worst-case lead management, order management, and application in the category—to create a portfo- sales force automation. For the operations pro- lio status report. With such a report, managers cess “provide rapid response,” participants can see the strategic readiness of the organiza- identified a transformational application (cus- tion’s information capital at a glance, easily tomer self-help) as well as an analytic applica- pinpointing the areas in which more resources tion (a best-practice community knowledge are needed. It is an excellent tool for monitor- management system) for sharing successful ing a portfolio of information capital develop- sales techniques among telemarketers. Finally, ment programs. the “minimize problems” process required an Many sophisticated IT organizations al- analytical application (service quality analy- ready use more quantitative, objective assess- sis) to identify problems and two related trans- ments of their information capital portfolios action-level systems (one for incident tracking than the subjective process we’ve just de- and another for problem management). scribed for Consumer Bank. These organiza- After defining its portfolio of IC applications survey users to assess their satisfaction tions, the project team identified several re- with each system. They perform financial anal- quired components of IT infrastructure. Some yses to determine the operating and mainte- applications needed a CRM transactions data- nance costs of each application. Some conduct base. Others required that a Web-enabled in- technical audits to assess the underlying qual- frastructure be integrated into the bank’s over- ity of the code, ease of use, quality of docu- all Web site architecture. The team also mentation, and frequency of failure for each learned about the need for an internal R&D application. From this profile, an organization project to develop a new interactive voice-re- can build strategies for managing its portfolio sponse technology. All together, the bank’s of existing IC assets just as one would manage planning process defined an information capi- a collection of physical assets like machinery tal portfolio made up of 14 unique applications or a fleet of trucks. Applications with high lev- (some of which supported more than one in- els of maintenance can be streamlined, for external process) and four IT infrastructure ample, applications with high operating costs projects. (See the exhibit “Information Capital can be optimized, and applications with high

harvard business review • february 2004 page 28 Measuring the Strategic Readiness of Intangible Assets

levels of user dissatisfaction can be replaced. psychology and is determined by the way orga- This more comprehensive approach can be ef- nizational influences—such as the incentive fective for managing a portfolio of applica- structure or the perceived warmth and support tions that are already operational. of superiors and peers—affect employees’ motivation and behavior. The anthropological Organization Capital Readiness component reflects employees’ shared atti- Success in performing the critical internal pro- tudes and beliefs independent of the actual or- cesses identified in an organization’s strategy ganizational infrastructure, while climate re- map invariably requires an organization to flects their shared perception of existing change in fundamental ways. Assessing OC organizational policies, practices, and proce- readiness is essentially about assessing how dures, both formal and informal. well the company can mobilize and sustain Surveying perceptions of existing organiza- the organization change agenda associated tional policies and practices is a fairly straight- with its strategy. For instance, if the strategy forward task, but getting at the base culture re- involves focusing on the customer, the com- quires a little more digging. Anthropologists pany needs to determine whether its existing usually rely on storytelling to identify shared culture is customer-centric, whether its lead- beliefs and images, but that approach is inade- ers have the requisite skills to foster such a cul- quate for quantifying the alignment of culture ture, whether employees are aware of the goal to strategy. Organizational behavior scholars and are motivated to deliver exceptional cus- have developed measurement instruments, tomer service, and, finally, how well employ- such as Charles O’Reilly and colleagues’ Orga- ees share with others their knowledge about nizational Culture Profile, in which employees the company’s customers. Let’s explore how rank 54 value statements according to their companies can make these kinds of assess- perceived importance and relevance in the or- ments for each of the four OC dimensions. ganization. Once ranked, an organization’s cul- Culture. Of the four, culture is perhaps the ture can be described with a reasonable degree most complex and difficult dimension to un- of reliability and validity. Then the organiza- derstand and describe because it encompasses tion can assess to what extent the existing cul- a wider range of behavioral territory than the ture is consistent with its strategy and what others. That’s probably why “shaping the cul- kinds of changes may be needed. ture” is the most often-cited objective in the One caveat: Managers do need to be aware Learning and Growth section of our Balanced that some variations in culture are necessary Scorecard database. Executives generally be- and desirable in different operating units or lieve that changes in strategy require basic functions. The culture of an R&D group, for changes in the way business is conducted at all example, should be different from the culture levels of the organization, which means, of of a manufacturing unit; the culture of an course, that people will need to develop new emergent business unit should be different attitudes and behaviors—in other words, from the culture of a mature one. Executives change their culture. should strive for agreement throughout the or- Assessment of cultural readiness relies ganization about corporatewide values such as heavily on employee surveys. But in preparing integrity, respect, treatment of colleagues, and surveys, companies need to distinguish clearly commitment to customer satisfaction. But between the values that all employees share— some value statements in the survey instru- the company’s base culture—and the percep- ment should refer to the culture of specific op- tions that employees have of their existing sys- erating units. So, for example, surveys of the tem—the climate. The concept of base culture employees in operations and service-delivery has its roots in anthropology, which defines an units would include statements about quality organization’s culture as the symbols, myths, and continuous improvement, whereas the and rituals embedded in the group conscious- R&D department survey might include state- ness (or subconscious). To describe a com- ments about creativity and innovation. For pany’s base culture, therefore, you have to un- employees involved in customer acquisition, cover the organization’s systems of shared statements might relate to retention and meanings, assumptions, and values. growth or to a deep understanding of individ- The concept of climate has its roots in social ual customers’ preferences and needs.

harvard business review • february 2004 page 29 Measuring the Strategic Readiness of Intangible Assets

Leadership. If companies change their strat- selves in the customers’ minds and spend time egies, people will have to do some things differ- with them to understand their current and fu- ently as well. It is the responsibility of leaders at ture needs. all levels of the organization—from the CEO of • Fostering Teamwork—Outstanding lead- a retail chain down to the local store managers work collaboratively with their own teams ers—to help employees identify and under- and across organizational and geographic stand the changes needed and to motivate and boundaries. They empower their teams to guide them toward the new ways of working. achieve excellence. In researching the best practices in our Bal- • Open Communications—Outstanding anced Scorecard database, we were able to leaders tell the truth. They openly share infor- identify seven generic types of behavioral mation with peers, managers, and subordi- changes that build organization capital, and nates. They tell the whole story, not just how it each fell into one of two categories: changes looks from their position. that support the creation of value—such as in- Often, organizations will measure leader- creasing people’s focus on the customer—and ship traits, such as those listed above, through those required to carry out the company’s employee surveys. A staff or external unit so- strategy—such as increasing accountability. licits information from subordinates, peers, The sidebar “Seven Behaviors for Transforma- and superiors about a leader’s mastery of the tion” describes these behavioral changes in critical skills. This personal feedback is used more detail. mainly for coaching and developing the To ensure that it gets the kind of leaders it leader, but the unit can also aggregate the de- needs, a company should draw up a leadership tailed (and confidential) data from the individ- competency model for each of its leadership po- ual reviews to create a status report on the sitions. This is a kind of job profile that defines readiness of key leadership competencies the competencies a leader is expected to have needed throughout the organization. to be effective in carrying out the company’s Alignment. An organization is aligned when strategy. For example, one manufacturing all employees have a commonality of purpose, company, attempting to create teams to solve a shared vision, and an understanding of how customers’ problems, identified and defined their personal roles support the overall strat- three competencies essential for people in egy. An aligned organization encourages be- team leadership positions: haviors such as innovation and risk taking be- • Customer Focus—Outstanding leaders cause individuals’ actions are directed toward understand their customers. They place them- achieving high-level objectives. Encouraging

Seven Behaviors for Transformation All new strategies require employees to company’s mission, vision and values; ac- frequently identified required new behavior make, and leaders to identify and foster, countability; communications; and team- in all the companies we studied. That’s some specific changes in behavior. But in work. partly because virtually every strategy initia- our research, companies that have success- Of course, no organization will try to tive starts with a clarification or redefinition fully changed their strategies have needed change all seven behaviors at once. Typi- of the customer value proposition. But some only a limited number of behavioral cally, a company will identify the two to four new strategies impose different priorities. changes—just seven, in fact—to maximize most important ones for implementing a Companies introducing shareholder value the contributions of their people to the exe- specific strategy. For example, firms in de- programs, for example, may already be suf- cution of their new strategies. The changes regulated industries like utilities or telecom- ficiently customer focused and will need in- fall into two categories: munications now place a heavy emphasis stead to focus on results. • Value Creation: Behaviors that support on becoming customer focused and innova- Companies adopting strategies that re- value creation are those that increase tive, which are, for them, totally new behav- quire high degrees of integration commonly focus on customers, innovation, and re- iors. Previously, operating from a monopoly need to increase communication. That was sults. position, they had focused on operating effi- so, for instance, for one pharmaceutical • Strategy Execution: Behaviors that sup- ciency and on avoiding risks to protect reve- company in our database that was attempt- port strategy execution are those that in- nues. ing to transfer knowledge and marketplace crease employees’ understanding of the That said, customer focus was the most experience from its commercial division to harvard business review • february 2004 page 30 Measuring the Strategic Readiness of Intangible Assets

and empowering individual initiative in an and establishes incentives that reward employ- unaligned organization leads to chaos, as the ees when they meet personal, departmental, innovative risk takers pull the organization in business unit, and corporate targets. contradictory directions. Measuring alignment readiness is relatively Achieving alignment is a two-step process. straightforward. Many survey instruments are First, managers communicate the high-level already available for assessing how much em- strategic objectives in ways that all employees ployees know about and how well they under- can understand. This involves using a wide stand high-level strategic objectives. It is also range of communication mechanisms: bro- fairly easy to see whether or not individuals’ chures, newsletters, town meetings, orienta- personal objectives and the company’s existing tion and training programs, executive talks, incentive schemes are consistent with the company intranets, and bulletin boards. The high-level strategy. goal of this step is to create intrinsic motiva- For example, a large property and casualty tion, to inspire employees to internalize the or- insurance company adopted a new strategy in- ganization’s values and objectives so that they tended to reduce its underwriting losses by cre- want to help the organization succeed. The ating a tighter link between the underwriters, next step uses extrinsic motivation. The orga- who decide whether to accept a new piece of nization has employees set explicit personal business, and the claims agents, who deal with and team objectives aligned to the strategy the consequences from poor underwriting de-

Organization CapitalReadiness Report The various measures for organization capital readiness should be put together in a readiness report, which shows, for all the components of organization capital, where the company needs to introduce changes to its behaviors and policies. The report shown here is a simplified version of one prepared by a company in our Balanced Scorecard database.

Attribute Strategic Objective Strategic Measure Target Actual

Customer-focused (customer

Foster awareness and survey; percentage who understand 80% 68% ved. the organization’s mission) x internalization of the Culture mission, vision, and core values needed to execute Other core values (employee change the strategy readiness survey) 80% 52% x

Develop leaders at all levels Leadership gap (percentage Leadership who can mobilize the organi- of key attributes in competency 90% 92% zation toward its strategy model rated above threshold)

Strategic awareness (percentage of staff who can identify organization’s 80% 75% strategic priorities) x Align goals and incentives Alignment with the strategy at all levels of the organization Strategic alignment (percentage of staff whose objectives and incentives 100% 60% link to Balanced Scorecard) x

Ensure that knowledge and Sharing best practices (number Teamwork staff assets that have strate- of knowledge management 5.0 6.1 gic potential are shared system hits per employee) pyright © 2004 Harvard Business School Publishing All rights reser Corporation. Co harvard business review • february 2004 page 31 Measuring the Strategic Readiness of Intangible Assets

cisions. Historically, these specialists lived in munities to complement the internal process different parts of the organization, and their objectives on its strategy map. The Improve incentives were totally unrelated to each Workplace Safety community consisted of the other, which clearly did little to foster coopera- safety directors from every facility. They stud- tion between them or with the line business ied the best practices at the high-performing units they supported. To reflect the new strat- plants and created a best practice–sharing pro- egy, the company changed to a team-based gram. The company’s output measure, “days compensation system in which everyone’s in- away from work,” dropped by 70%. In another centive pay was based on a common set of example, a children’s hospital was attempting measures (their Balanced Scorecard). Under- to reduce costs without reducing the quality of writers and claims agents, who worked in ser- patient care. Intensive discussions resulted in a vice departments shared by the various busi- top-ten list of best practices already being used ness units, were now rewarded using the somewhere in the hospital. The hospital then Balanced Scorecard measures related to the formed cross-functional medical practice business units they supported. The company teams of physicians, nurses, and administra- used a survey instrument to capture the em- tors to implement as many of these procedures ployees’ perceptions of the improved team- as they practically could. It measured success, work created by aligning the incentive sys- the output of this knowledge-sharing process, tems. by the “number of best practices utilized.” The Teamwork and Knowledge Sharing. There effective implementation of best practices is no greater waste than a good idea used only over the next three years led to dramatic im- once. Most organizations have to go through a provements in organizational outcomes: Read- cultural change to shift individuals from mission rates dropped by 50%, cost per case hoarding to sharing their local knowledge. No and length of stay each declined by 25%, and asset has greater potential for an organization both customer satisfaction and quality of care than the collective knowledge possessed by all increased. In these and many other examples its employees. That’s why many companies, in our case files, organizations enhanced their hoping to generate, organize, develop, and performance by aligning the teamwork and distribute knowledge throughout the organi- knowledge-sharing component of their organization, have spent millions of dollars to pur- zation capital with their strategy. chase or create formal knowledge manage- To get an overview of organizational readi- ment systems. ness, companies can put the information they The challenge in implementing such sys- obtain from their various surveys and assess- tems is motivating people to actually documents together in a report like the one shown ment their ideas and knowledge to make them in “Organization Capital Readiness Report.” In available to others. Most organizations in our this exhibit, the leadership measure, drawn Balanced Scorecard database attempted to de- from the leadership competency model, dis- velop such motivation by selecting “team- plays the company’s estimate, based on em- work” and “knowledge sharing” as strategic ployee surveys, of the degree to which the priorities in their Learning and Growth Per- company possesses the key attributes for lead- spective. Typical measures for these priorities ership. At 92%, the company is above target on included the number of best practice ideas the its leadership objective and can be considered employees identified and used, the percentage strategically ready in terms of this dimension. of employees who transferred knowledge in a The company’s OC with respect to teamwork workout process, the number of people who and knowledge sharing is also in good shape. actually used the knowledge management sys- But the firm is performing inadequately in tem, how often the system is used, the percent- alignment and in developing the right culture, age of information in the knowledge manage- and these problems are lowering its overall ment system that was updated, and how much level of organization capital readiness. was obsolete. • • • For knowledge sharing to matter, it must be The intangible assets described in the Bal- aligned with the priorities of the strategy map. anced Scorecard’s Learning and Growth Per- For example, one organization—a chemical spective are the foundation of every organiza- company—created several best practice com- tion’s strategy, and the measures in this

harvard business review • february 2004 page 32 Measuring the Strategic Readiness of Intangible Assets

perspective are the ultimate lead indicators. lenge. Using the systematic approaches set out Human capital becomes most valuable when in this article, companies can now measure it is concentrated in the relatively few strate- what they want, rather than wanting only gic job families implementing the internal what they can currently measure. Even if the processes critical to the organization’s strat- measures are imprecise, the simple act of at- egy. Information capital creates the greatest tempting to gauge the capabilities of employ- value when it provides the requisite infra- ees, information systems, and organization structure and strategic applications that com- capital communicates the importance of these plement the human capital. Organizations in- drivers for value creation. In the course of our troducing a new strategy must create a culture work, we have seen many companies find new of corresponding values, a cadre of excep- ways to measure—and consequently new ways tional leaders who can lead the change to enhance the value of—their intangible as- agenda, and an informed workforce aligned to sets. The measurement and management of the strategy, working together, and sharing these assets played a prominent role in their knowledge to help the strategy succeed. transformation into successful, strategy- Some managers shy away from measuring focused organizations. their intangible assets because these measures are usually “softer,” or more subjective, than Reprint R0402C; Harvard Business Review the financial measures they conventionally use OnPoint 5887 To order, see the next page to motivate and assess performance. The Bal- or call 800-988-0886 or 617-783-7500 anced Scorecard movement has encouraged or go to www.hbr.org organizations to face the measurement chal-

harvard business review • february 2004 page 33 Measuring the Strategic Readiness of Intangible Assets

Further Reading ARTICLES The Growth Crisis—and How to Escape It Coming Up Short on Nonfinancial by Adrian J. Slywotzky and Richard Wise Performance Measurement Harvard Business Review by Christopher D. Ittner and David F. July 2002 Larcker Product no. 5577 Harvard Business Review November 2003 These authors describe additional intangible Product no. 5380 assets and explain how to leverage them for impressive financial results. Beyond human, Ittner and Larcker agree that measuring intan- information, and organizational capital, your gible assets is crucial to achieving your com- company has accumulated hidden assets in pany’s strategic objectives. But too many the normal course of doing business. These companies, they maintain, don’t identify, ana- include customer relationships (your reputa- lyze, and act on the right measures. Nor do tion for expertise, your high level of customer they demonstrate clear connections between interaction), strategic “real estate” (your strong improvements in nonfinancial areas, such as market position, your place in the value customer loyalty or employee satisfaction, chain), and networks (your installed product and financial results, such as profit or stock base, user communities, supplier links). price. The consequences? Misdirected investments and unfulfilled strategies Hidden assets offer numerous advantages: They generate more growth than product ex- To complete the picture of your company’s tensions and pose less risk than new products strategic performance, create a causal model or new markets. They reinforce—not canni- linking nonfinancial drivers to financial perfor- balize—your core product business. And rivals mance. For example, “Better employee selec- can’t easily replicate them. tion will increase employee satisfaction and performance, which will drive customer satis- Sears, for example, leveraged its reputation for faction, purchase frequency, and retention— expertise to enter the home-renovation mar- improving growth, earnings, and cash flow.” ket. Sears Great Indoors provides full-spec- Verify the assumptions in your causal model; trum remodeling services—from design and for instance, ask “What kind of supervision and financing to construction and installation. It support drive employee satisfaction? How do streamlines customers’ shopping time and satisfied employees increase customer satis- To Order project planning, and improves the quality of faction?” Then set reasonable performance the finished renovation. It also enabled Sears targets for your intangible assets. For example, For reprints, Harvard Business Review to build a strong position in this market. don’t aim for 100% customer satisfaction if OnPoint orders, and subscriptions completely satisfied customers spend no to Harvard Business Review: more than mostly satisfied ones. And use valid Call 800-988-0886 or 617-783-7500. measures to assess your assets—such as cus- Go to www.hbr.org tomer surveys with sufficient breadth or depth of questions—and consistent measure- For customized and quantity orders ment techniques across all departments. of reprints and Harvard Business Review OnPoint products: Call Frank Tamoshunas at 617-783-7626, or e-mail him at [email protected]

page 34 3rd article from the collection: Focusing Your Organization on Strategy—with the Balanced Score- card, 2nd Edition Using the Balanced Scorecard as a Strategic Management System

by Robert S. Kaplan and David P. Norton

Included with this full-text Harvard Business Review article:

36 Article Summary The Idea in Brief—the core idea The Idea in Practice—putting the idea to work

37 Using the Balanced Scorecard as a Strategic Management System

48 Further Reading A list of related materials, with annotations to guide further exploration of the article’s ideas and applications

Product 4126

page 35 Using the Balanced Scorecard as a Strategic Management System

The Idea in Brief The Idea in Practice Why do budgets often bear little direct rela- The balanced scorecard relies on four pro- stones for gauging the progress they make tion to a company’s long-term strategic ob- cesses to bind short-term activities to long- with these drivers. jectives? Because they don’t take enough term objectives: 4. Feedback and learning. By supplying a into consideration. A balanced scorecard 1. Translating the vision. By relying on mechanism for strategic feedback and re- augments traditional financial measures measurement, the scorecard forces manag- view, the balanced scorecard helps an or- with benchmarks for performance in three ers to come to agreement on the metrics ganization foster a kind of learning often key nonfinancial areas: they will use to operationalize their lofty vi- missing in companies: the ability to reflect • a company’s relationship with its cus- sions. on inferences and adjust theories about tomers cause-and-effect relationships. Example: • its key internal processes A bank had articulated its strategy as pro- Feedback about products and services. New viding “superior service to targeted cus- learning about key internal processes. Tech- • its learning and growth. tomers.” But the process of choosing opera- nological discoveries. All this information can When performance measures for these tional measures for the four areas of the be fed into the scorecard, enabling strategic areas are added to the financial metrics, the scorecard made executives realize that they refinements to be made continually. Thus, at result is not only a broader perspective on first needed to reconcile divergent views of any point in the implementation, managers the company’s health and activities, it’s also who the targeted customers were and can know whether the strategy is working— a powerful organizing framework. A sophis- what constituted superior service. and if not, why. ticated instrument panel for coordinating 2. Communicating and linking. When a and fine-tuning a company’s operations scorecard is disseminated up and down the and businesses so that all activities are organizational chart, strategy becomes a aligned with its strategy. tool available to everyone. As the high-level scorecard cascades down to individual business units, overarching strategic objectives and measures are translated into objectives and measures appropriate to each particular group. Tying these targets to individual performance and compensation systems yields “personal scorecards.” Thus, individual employees understand how their own productivity supports the overall strategy. 3. Business planning. Most companies have separate procedures (and sometimes units) for strategic planning and budgeting. Little wonder, then, that typical long-term planning is, in the words of one executive, where “the rubber meets the sky.” The disci- pline of creating a balanced scorecard forces companies to integrate the two functions, thereby ensuring that financial budgets do indeed support strategic goals. After agreeing on performance measures for the four scorecard perspectives, companies identify the most influential “drivers” of the desired outcomes and then set mile- COPYRIGHT © 2000 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

page 36 Building a scorecard can help managers link today’s actions with tomorrow’s goals.

Using the Balanced Scorecard as a Strategic Management System

by Robert S. Kaplan and David P. Norton

As companies around the world transform new strategic management system. Used this themselves for competition that is based on way, the scorecard addresses a serious defi- information, their ability to exploit intangible ciency in traditional management systems: assets has become far more decisive than their their inability to link a company’s long-term ability to invest in and manage physical assets. strategy with its short-term actions. Several years ago, in recognition of this Most companies’ operational and manage- change, we introduced a concept we called the ment control systems are built around finan- balanced scorecard. The balanced scorecard cial measures and targets, which bear little re- supplemented traditional financial measures lation to the company’s progress in achieving with criteria that measured performance from long-term strategic objectives. Thus the em- three additional perspectives—those of cus- phasis most companies place on short-term fi- tomers, internal business processes, and learn- nancial measures leaves a gap between the ing and growth. (See the chart “Translating development of a strategy and its implemen- Vision and Strategy: Four Perspectives.”) It tation. therefore enabled companies to track finan- Managers using the balanced scorecard do cial results while simultaneously monitoring not have to rely on short-term financial mea- progress in building the capabilities and ac- sures as the sole indicators of the company’s quiring the intangible assets they would need performance. The scorecard lets them intro- for future growth. The scorecard wasn’t a reduce four new management processes that, placement for financial measures; it was their separately and in combination, contribute to complement. linking long-term strategic objectives with Recently, we have seen some companies short-term actions. (See the chart “Managing move beyond our early vision for the scorecard Strategy: Four Processes.”) to discover its value as the cornerstone of a The first new process—translating the vision— COPYRIGHT © 1996 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

harvard business review • january–february 1996 page 37 Using the Balanced Scorecard as a Strategic Management System

helps managers build a consensus around the formance. The scorecard thus enables compa- organization’s vision and strategy. Despite the nies to modify strategies to reflect real-time best intentions of those at the top, lofty state- learning. ments about becoming “best in class,” “the None of the more than 100 organizations number one supplier,” or an “empowered or- that we have studied or with which we have ganization” don’t translate easily into opera- worked implemented their first balanced tional terms that provide useful guides to ac- scorecard with the intention of developing a tion at the local level. For people to act on the new strategic management system. But in words in vision and strategy statements, those each one, the senior executives discovered that statements must be expressed as an integrated the scorecard supplied a framework and thus a set of objectives and measures, agreed upon by focus for many critical management processes: all senior executives, that describe the long- departmental and individual goal setting, busi- term drivers of success. ness planning, capital allocations, strategic ini- The second process—communicating and tiatives, and feedback and learning. Previ- linking—lets managers communicate their ously, those processes were uncoordinated and strategy up and down the organization and often directed at short-term operational goals. link it to departmental and individual objec- By building the scorecard, the senior executives. Traditionally, departments are evaluated tives started a process of change that has gone by their financial performance, and individual well beyond the original idea of simply broad- incentives are tied to short-term financial ening the company’s performance measures. goals. The scorecard gives managers a way of For example, one insurance company—let’s ensuring that all levels of the organization un- call it National Insurance—developed its first derstand the long-term strategy and that both balanced scorecard to create a new vision for departmental and individual objectives are itself as an underwriting specialist. But once aligned with it. National started to use it, the scorecard al- The third process—business planning—en- lowed the CEO and the senior management ables companies to integrate their business team not only to introduce a new strategy for and financial plans. Almost all organizations the organization but also to overhaul the com- today are implementing a variety of change pany’s management system. The CEO subse- programs, each with its own champions, gurus, quently told employees in a letter addressed to and consultants, and each competing for se- the whole organization that National would nior executives’ time, energy, and resources. thenceforth use the balanced scorecard and Managers find it difficult to integrate those di- the philosophy that it represented to manage verse initiatives to achieve their strategic the business. goals—a situation that leads to frequent disap- National built its new strategic manage- pointments with the programs’ results. But ment system step-by-step over 30 months, with when managers use the ambitious goals set for each step representing an incremental im- Robert S. Kaplan is the Arthur Lowes balanced scorecard measures as the basis for provement. (See the chart “How One Com- Dickinson Professor of Accounting at allocating resources and setting priorities, they pany Built a Strategic Management System.”) the Harvard Business School in Boston, can undertake and coordinate only those initi- The iterative sequence of actions enabled the Massachusetts. David P. Norton is atives that move them toward their long-term company to reconsider each of the four new the founder and president of Renais- strategic objectives. management processes two or three times be- sance Solutions, a consulting firm in The fourth process—feedback and learn- fore the system stabilized and became an es- Lincoln, Massachusetts. They are the ing—gives companies the capacity for what we tablished part of National’s overall manage- authors of “The Balanced Scorecard— call strategic learning. Existing feedback and ment system. Thus the CEO was able to Measures That Drive Performance” review processes focus on whether the com- transform the company so that everyone could (HBR January–February 1992) and pany, its departments, or its individual em- focus on achieving long-term strategic objec- “Putting the Balanced Scorecard to ployees have met their budgeted financial tives—something that no purely financial Work” (HBR September–October goals. With the balanced scorecard at the cen- framework could do. 1993). Kaplan and Norton have also ter of its management systems, a company can written a book on the balanced score- monitor short-term results from the three Translating the Vision card to be published in September additional perspectives—customers, internal The CEO of an engineering construction com- 1996 by the Harvard Business School business processes, and learning and growth— pany, after working with his senior manage- Press. and evaluate strategy in the light of recent per- ment team for several months to develop a

harvard business review • january–february 1996 page 38 Using the Balanced Scorecard as a Strategic Management System

mission statement, got a phone call from a had reached agreement on the new organiza- project manager in the field. “I want you to tion’s overall strategy: “to provide superior ser- know,” the distraught manager said, “that I vice to targeted customers.” Research had re- believe in the mission statement. I want to act vealed five basic market segments among in accordance with the mission statement. I’m existing and potential customers, each with here with my customer. What am I supposed different needs. While formulating the mea- to do?” sures for the customer-perspective portion of The mission statement, like those of many their balanced scorecard, however, it became other organizations, had declared an intention apparent that although the 25 senior execu- to “use high-quality employees to provide ser- tives agreed on the words of the strategy, each vices that surpass customers’ needs.” But the one had a different definition of superior ser- project manager in the field with his employ- vice and a different image of the targeted cus- ees and his customer did not know how to tomers. translate those words into the appropriate ac- The exercise of developing operational tions. The phone call convinced the CEO that a measures for the four perspectives on the large gap existed between the mission state- bank’s scorecard forced the 25 executives to ment and employees’ knowledge of how their clarify the meaning of the strategy statement. day-to-day actions could contribute to realiz- Ultimately, they agreed to stimulate revenue ing the company’s vision. growth through new products and services and Metro Bank (not its real name), the result of also agreed on the three most desirable cus- a merger of two competitors, encountered a tomer segments. They developed scorecard similar gap while building its balanced score- measures for the specific products and services card. The senior executive group thought it that should be delivered to customers in the

harvard business review • january–february 1996 page 39 Using the Balanced Scorecard as a Strategic Management System

targeted segments as well as for the relation- achievement of the financial and customer ship the bank should build with customers in goals. For example, knowing the importance each segment. The scorecard also highlighted of satisfying customers’ expectations of on- gaps in employees’ skills and in information time delivery, the broader group identified sev- systems that the bank would have to close in eral internal business processes—such as order order to deliver the selected value propositions processing, scheduling, and fulfillment—in to the targeted customers. Thus, creating a bal- which the company had to excel. To do so, the anced scorecard forced the bank’s senior man- company would have to retrain frontline em- agers to arrive at a consensus and then to ployees and improve the information systems translate their vision into terms that had available to them. The group developed per- meaning to the people who would realize the formance measures for those critical processes vision. and for staff and systems capabilities. Broad participation in creating a scorecard Communicating and Linking takes longer, but it offers several advantages: “The top ten people in the business now un- Information from a larger number of manag- derstand the strategy better than ever before. ers is incorporated into the internal objectives; It’s too bad,” a senior executive of a major oil the managers gain a better understanding of company complained, “that we can’t put this the company’s long-term strategic goals; and in a bottle so that everyone could share it.” such broad participation builds a stronger With the balanced scorecard, he can. commitment to achieving those goals. But get- One company we have worked with deliber- ting managers to buy into the scorecard is only ately involved three layers of management in a first step in linking individual actions to cor- the creation of its balanced scorecard. The se- porate goals. nior executive group formulated the financial The balanced scorecard signals to everyone and customer objectives. It then mobilized the what the organization is trying to achieve for talent and information in the next two levels shareholders and customers alike. But to align of managers by having them formulate the employees’ individual performances with the internal-business-process and learning-and- overall strategy, scorecard users generally en- growth objectives that would drive the gage in three activities: communicating and educating, setting goals, and linking rewards to performance measures. Communicating and Educating. Implement- ing a strategy begins with educating those who have to execute it. Whereas some organizations opt to hold their strategy close to the vest, most believe that they should disseminate it from top to bottom. A broad-based communication

program shares with all employees the strategy and the critical objectives they have to meet if the strategy is to succeed. Onetime events such as the distribution of brochures or newsletters and the holding of “town meetings” might kick off the program. Some organizations post bul-

letin boards that illustrate and explain the balanced scorecard measures, then update them

with monthly results. Others use groupware and electronic bulletin boards to distribute the scorecard to the desktops of all employees and to encourage dialogue about the measures. The same media allow employees to make suggestions for achieving or exceeding the targets. The balanced scorecard, as the embodiment of business unit strategy, should also be com- municated upward in the organization—to

harvard business review • january–february 1996 page 40 Using the Balanced Scorecard as a Strategic Management System

corporate headquarters and to the corporate consistent with the organization’s. It created a board of directors. With the scorecard, busi- small, fold-up personal scorecard that people ness units can quantify and communicate their could carry in their shirt pockets or wallets. (See long-term strategies to senior executives using the exhibit “The Personal Scorecard.”) The a comprehensive set of linked financial and scorecard contains three levels of information. nonfinancial measures. Such communication The first describes corporate objectives, mea- informs the executives and the board in spe- sures, and targets. The second leaves room for cific terms that long-term strategies designed translating corporate targets into targets for for competitive success are in place. The mea- each business unit. For the third level, the com- sures also provide the basis for feedback and pany asks both individuals and teams to articu- accountability. Meeting short-term financial late which of their own objectives would be targets should not constitute satisfactory per- consistent with the business unit and corporate formance when other measures indicate that objectives, as well as what initiatives they would the long-term strategy is either not working or take to achieve their objectives. It also asks not being implemented well. them to define up to five performance mea- Should the balanced scorecard be communi- sures for their objectives and to set targets for cated beyond the boardroom to external share- each measure. The personal scorecard helps to holders? We believe that as senior executives communicate corporate and business unit ob- gain confidence in the ability of the scorecard jectives to the people and teams performing the measures to monitor strategic performance and work, enabling them to translate the objectives predict future financial performance, they will into meaningful tasks and targets for them- find ways to inform outside investors about selves. It also lets them keep that information those measures without disclosing competi- close at hand—in their pockets. The personal scorecard tively sensitive information. Linking Rewards to Performance Mea- Skandia, an insurance and financial services sures. Should compensation systems be linked helps to communicate company based in Sweden, issues a supple- to balanced scorecard measures? Some com- corporate and unit ment to its annual report called “The Business panies, believing that tying financial compen- Navigator”—“an instrument to help us navi- sation to performance is a powerful lever, objectives to the people gate into the future and thereby stimulate re- have moved quickly to establish such a link- newal and development.” The supplement de- age. For example, an oil company that we’ll and teams performing scribes Skandia’s strategy and the strategic call Pioneer Petroleum uses its scorecard as the work. measures the company uses to communicate the sole basis for computing incentive com- and evaluate the strategy. It also provides a re- pensation. The company ties 60% of its execu- port on the company’s performance along tives’ bonuses to their achievement of ambi- those measures during the year. The measures tious targets for a weighted average of four are customized for each operating unit and in- financial indicators: return on capital, profit- clude, for example, market share, customer ability, cash flow, and operating cost. It bases satisfaction and retention, employee compe- the remaining 40% on indicators of customer tence, employee empowerment, and technol- satisfaction, dealer satisfaction, employee sat- ogy deployment. isfaction, and environmental responsibility Communicating the balanced scorecard (such as a percentage change in the level of promotes commitment and accountability to emissions to water and air). Pioneer’s CEO the business’s long-term strategy. As one exec- says that linking compensation to the score- utive at Metro Bank declared, “The balanced card has helped to align the company with its scorecard is both motivating and obligating.” strategy. “I know of no competitor,” he says, Setting Goals. Mere awareness of corporate “who has this degree of alignment. It is pro- goals, however, is not enough to change many ducing results for us.” people’s behavior. Somehow, the organization’s As attractive and as powerful as such link- high-level strategic objectives and measures age is, it nonetheless carries risks. For instance, must be translated into objectives and measures does the company have the right measures on for operating units and individuals. the scorecard? Does it have valid and reliable The exploration group of a large oil company data for the selected measures? Could unin- developed a technique to enable and encourage tended or unexpected consequences arise from individuals to set goals for themselves that were the way the targets for the measures are

harvard business review • january–february 1996 page 41 Using the Balanced Scorecard as a Strategic Management System

achieved? Those are questions that companies the explanation of actual versus targeted re- should ask. sults—provides a better opportunity to ob- Furthermore, companies traditionally han- serve managers’ performance and abilities. In- dle multiple objectives in a compensation for- creased knowledge of their managers’ abilities mula by assigning weights to each objective makes it easier for executives to set incentive and calculating incentive compensation by the rewards subjectively and to defend those sub- extent to which each weighted objective was jective evaluations—a process that is less sus- achieved. This practice permits substantial in- ceptible to the game playing and distortions centive compensation to be paid if the busi- associated with explicit, formula-based rules. ness unit overachieves on a few objectives One company we have studied takes an in- even if it falls far short on others. A better ap- termediate position. It bases bonuses for busi- proach would be to establish minimum thresh- ness unit managers on two equally weighted old levels for a critical subset of the strategic criteria: their achievement of a financial objec- measures. Individuals would earn no incentive tive—economic value added—over a three- compensation if performance in a given period year period and a subjective assessment of fell short of any threshold. This requirement their performance on measures drawn from should motivate people to achieve a more bal- the customer, internal-business-process, and anced performance across short- and long- learning-and-growth perspectives of the bal- term objectives. anced scorecard. Some organizations, however, have re- That the balanced scorecard has a role to duced their emphasis on short-term, formula- play in the determination of incentive com- based incentive systems as a result of introduc- pensation is not in doubt. Precisely what that ing the balanced scorecard. They have discov- role should be will become clearer as more ered that dialogue among executives and companies experiment with linking rewards to managers about the scorecard—both the for- scorecard measures. mulation of the measures and objectives and

harvard business review • january–february 1996 page 42 Using the Balanced Scorecard as a Strategic Management System

Business Planning of financial numbers that generally bear little “Where the rubber meets the sky”: That’s how relation to the targets in the strategic plan. one senior executive describes his company’s Which document do corporate managers dis- long-range-planning process. He might have cuss in their monthly and quarterly meetings said the same of many other companies because during the following year? Usually only the their financially based management systems fail budget, because the periodic reviews focus on a to link change programs and resource allocation comparison of actual and budgeted results for to long-term strategic priorities. every line item. When is the strategic plan next The problem is that most organizations have discussed? Probably during the next annual off- separate procedures and organizational units site meeting, when the senior managers draw for strategic planning and for resource alloca- up a new set of three-, five-, and ten-year plans. tion and budgeting. To formulate their strategic The very exercise of creating a balanced plans, senior executives go off-site annually and scorecard forces companies to integrate their engage for several days in active discussions fa- strategic planning and budgeting processes and cilitated by senior planning and development therefore helps to ensure that their budgets sup- managers or external consultants. The outcome port their strategies. Scorecard users select mea- of this exercise is a strategic plan articulating sures of progress from all four scorecard per- where the company expects (or hopes or prays) spectives and set targets for each of them. Then to be in three, five, and ten years. Typically, they determine which actions will drive them such plans then sit on executives’ bookshelves toward their targets, identify the measures they for the next 12 months. will apply to those drivers from the four per- Meanwhile, a separate resource-allocation spectives, and establish the short-term mile- and budgeting process run by the finance staff stones that will mark their progress along the sets financial targets for revenues, expenses, strategic paths they have selected. Building a profits, and investments for the next fiscal year. scorecard thus enables a company to link its fi- The budget it produces consists almost entirely nancial budgets with its strategic goals.

harvard business review • january–february 1996 page 43 Using the Balanced Scorecard as a Strategic Management System

For example, one division of the Style Com- scarce resources, including the scarcest resource pany (not its real name) committed to achiev- of all: senior managers’ time and attention. ing a seemingly impossible goal articulated by Shortly after the merger that created it, the CEO: to double revenues in five years. The Metro Bank, for example, launched more than forecasts built into the organization’s existing 70 different initiatives. The initiatives were in- strategic plan fell $1 billion short of this objec- tended to produce a more competitive and suc- tive. The division’s managers, after considering cessful institution, but they were inadequately various scenarios, agreed to specific increases in integrated into the overall strategy. After build- five different performance drivers: the number ing their balanced scorecard, Metro Bank’s of new stores opened, the number of new cus- managers dropped many of those programs— tomers attracted into new and existing stores, such as a marketing effort directed at individu- the percentage of shoppers in each store con- als with very high net worth—and consolidated verted into actual purchasers, the portion of ex- others into initiatives that were better aligned isting customers retained, and average sales per with the company’s strategic objectives. For ex- customer. ample, the managers replaced a program aimed By helping to define the key drivers of reve- at enhancing existing low-level selling skills nue growth and by committing to targets for with a major initiative aimed at retraining sales- each of them, the division’s managers eventu- persons to become trusted financial advisers, ca- ally grew comfortable with the CEO’s ambitious pable of selling a broad range of newly intro- goal. duced products to the three selected customer The process of building a balanced score- segments. The bank made both changes be- card—clarifying the strategic objectives and cause the scorecard enabled it to gain a better then identifying the few critical drivers—also understanding of the programs required to creates a framework for managing an organiza- achieve its strategic objectives. tion’s various change programs. These initia- Once the strategy is defined and the drivers tives—reengineering, employee empowerment, are identified, the scorecard influences manag- time-based management, and total quality man- ers to concentrate on improving or reengineer- agement, among others—promise to deliver re- ing those processes most critical to the organiza- sults but also compete with one another for tion’s strategic success. That is how the scorecard most clearly links and aligns action with strategy. The final step in linking strategy to actions is to establish specific short-term targets, or milestones, for the balanced scorecard measures. Milestones are tangible expressions of managers’ beliefs about when and to what degree their current programs will affect those measures. In establishing milestones, managers are ex- panding the traditional budgeting process to in- corporate strategic as well as financial goals. De- tailed financial planning remains important, but financial goals taken by themselves ignore the three other balanced scorecard perspectives. In an integrated planning and budgeting process, executives continue to budget for short-term financial performance, but they also introduce short-term targets for measures in the customer, internal-business-process, and learning-and-growth perspectives. With those milestones established, managers can continually test both the theory underlying the strategy and the strategy’s implementation. At the end of the business planning process, managers should have set targets for the long-

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term objectives they would like to achieve in all remedied. This single-loop process does not re- four scorecard perspectives; they should have quire or even facilitate reexamination of either identified the strategic initiatives required and the strategy or the techniques used to imple- allocated the necessary resources to those initia- ment it in light of current conditions. tives; and they should have established mile- Most companies today operate in a turbu- stones for the measures that mark progress to- lent environment with complex strategies that, ward achieving their strategic goals. though valid when they were launched, may lose their validity as business conditions Feedback and Learning change. In this kind of environment, where “With the balanced scorecard,” a CEO of an new threats and opportunities arise constantly, engineering company told us, “I can continu- companies must become capable of what Chris ally test my strategy. It’s like performing real- Argyris calls double-loop learning—learning time research.” That is exactly the capability that produces a change in people’s assump- that the scorecard should give senior manag- tions and theories about cause-and-effect rela- ers: the ability to know at any point in its im- tionships. (See “Teaching Smart People How plementation whether the strategy they have to Learn,” HBR May–June 1991.) formulated is, in fact, working, and if not, Budget reviews and other financially based why. management tools cannot engage senior exec- The first three management processes— utives in double-loop learning—first, because translating the vision, communicating and these tools address performance from only one linking, and business planning—are vital for perspective, and second, because they don’t in- implementing strategy, but they are not suffi- volve strategic learning. Strategic learning con- cient in an unpredictable world. Together they sists of gathering feedback, testing the hypoth- form an important single-loop-learning pro- eses on which strategy was based, and making cess—single-loop in the sense that the objec- the necessary adjustments. tive remains constant, and any departure from The balanced scorecard supplies three ele- the planned trajectory is seen as a defect to be ments that are essential to strategic learning.

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First, it articulates the company’s shared vi- planning process, executives are forecasting sion, defining in clear and operational terms the relationship between changes in perfor- the results that the company, as a team, is try- mance drivers and the associated changes in ing to achieve. The scorecard communicates a one or more specified goals. For example, exec- holistic model that links individual efforts and utives at Metro Bank estimated the amount of accomplishments to business unit objectives. time it would take for improvements in train- Second, the scorecard supplies the essential ing and in the availability of information sys- strategic feedback system. A business strategy tems before employees could sell multiple fi- can be viewed as a set of hypotheses about nancial products effectively to existing and cause-and-effect relationships. A strategic feed- new customers. They also estimated how great back system should be able to test, validate, the effect of that selling capability would be. and modify the hypotheses embedded in a Another organization attempted to validate business unit’s strategy. By establishing short- its hypothesized cause-and-effect relationships term goals, or milestones, within the business in the balanced scorecard by measuring the strength of the linkages among measures in the different perspectives. (See the chart “How One Company Linked Measures from the Four Perspectives.”) The company found significant correlations between employees’ morale, a measure in the learning-and-growth perspective, and customer satisfaction, an important customer perspective measure. Customer satisfaction, in turn, was correlated with faster pay- ment of invoices—a relationship that led to a substantial reduction in accounts receivable and hence a higher return on capital employed. The company also found correlations between employees’ morale and the number of suggestions made by employees (two learning-and-growth measures) as well as between an increased number of suggestions and lower rework (an internal-business-process measure). Evidence of such strong correlations help to confirm the organization’s business strategy. If, however, the expected correlations are not found over time, it should be an indica- tion to executives that the theory underlying the unit’s strategy may not be working as they had anticipated. Especially in large organizations, accumulat- ing sufficient data to document significant correlations and causation among balanced scorecard measures can take a long time—months or years. Over the short term, managers’ assessment of strategic impact may have to rest on subjective and qualitative judgments. Eventu- ally, however, as more evidence accumulates, organizations may be able to provide more ob- jectively grounded estimates of cause-and-effect relationships. But just getting managers to think systematically about the assumptions underlying their strategy is an improvement over the current practice of making decisions based on short-term operational results.

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Third, the scorecard facilitates the strategy concepts provided clarification, consensus, review that is essential to strategic learning. Tra- and focus on the desired improvements in per- ditionally, companies use the monthly or quar- formance. More recently, we have seen com- terly meetings between corporate and division panies expand their use of the balanced score- executives to analyze the most recent period’s card, employing it as the foundation of an financial results. Discussions focus on past per- integrated and iterative strategic manage- formance and on explanations of why financial ment system. Companies are using the score- objectives were not achieved. The balanced card to scorecard, with its specification of the causal re- • clarify and update strategy, lationships between performance drivers and • communicate strategy throughout the objectives, allows corporate and business unit company, executives to use their periodic review sessions • align unit and individual goals with the to evaluate the validity of the unit’s strategy strategy, and the quality of its execution. If the unit’s em- • link strategic objectives to long-term tar- ployees and managers have delivered on the gets and annual budgets, performance drivers (retraining of employees, • identify and align strategic initiatives, and availability of information systems, and new fi- • conduct periodic performance reviews to nancial products and services, for instance), learn about and improve strategy. then their failure to achieve the expected out- The balanced scorecard enables a company comes (higher sales to targeted customers, for to align its management processes and focuses example) signals that the theory underlying the the entire organization on implementing long- strategy may not be valid. The disappointing term strategy. At National Insurance, the sales figures are an early warning. scorecard provided the CEO and his managers Managers should take such disconfirming ev- with a central framework around which they idence seriously and reconsider their shared could redesign each piece of the company’s conclusions about market conditions, customer management system. And because of the value propositions, competitors’ behavior, and cause-and-effect linkages inherent in the score- internal capabilities. The result of such a review card framework, changes in one component of may be a decision to reaffirm their belief in the the system reinforced earlier changes made current strategy but to adjust the quantitative elsewhere. Therefore, every change made over relationship among the strategic measures on the 30-month period added to the momentum the balanced scorecard. But they also might that kept the organization moving forward in conclude that the unit needs a different strategy the agreed-upon direction. (an example of double-loop learning) in light of Without a balanced scorecard, most organi- new knowledge about market conditions and zations are unable to achieve a similar consis- internal capabilities. In any case, the scorecard tency of vision and action as they attempt to will have stimulated key executives to learn change direction and introduce new strategies about the viability of their strategy. This capac- and processes. The balanced scorecard pro- ity for enabling organizational learning at the vides a framework for managing the imple- executive level—strategic learning—is what dis- mentation of strategy while also allowing the tinguishes the balanced scorecard, making it in- strategy itself to evolve in response to changes valuable for those who wish to create a strategic in the company’s competitive, market, and management system. technological environments.

Toward a New Strategic Reprint 96107; Harvard Business Review Management System OnPoint 4126 To order, see the next page Many companies adopted early balanced- or call 800-988-0886 or 617-783-7500 scorecard concepts to improve their perfor- or go to www.hbr.org mance measurement systems. They achieved tangible but narrow results. Adopting those

harvard business review • january–february 1996 page 47 Using the Balanced Scorecard as a Strategic Management System

Further Reading ARTICLES Putting the Balanced Scorecard to Work The Balanced Scorecard—Measures that by Robert S. Kaplan and David P. Norton Drive Performance Harvard Business Review by Robert S. Kaplan and David P. Norton September–October 1993 Harvard Business Review Product no. 4118 January–February 1992 Product no. 4096 In this development of their initial article, the authors argue that the balanced scorecard is This article introduced the concept of a bal- more than a measurement system. Four char- anced scorecard to HBR readers. Traditional acteristics make it distinctive: it is a top-down performance measurement systems focus on reflection of the company’s mission and strat- control, the authors argue—for example, egy, it is forward-looking, it integrates external measuring the number of widgets produced and internal measures, and it helps a com- against the number budgeted. But a balanced pany focus. Together, these characteristics en- scorecard approach to performance focuses able a scorecard to serve as a means for moti- on vision and strategy. It provides a compre- vating and implementing breakthrough hensive snapshot of a business by combining performance. financial measures with metrics for customer satisfaction, key internal processes, and orga- Profit Priorities from Activity-Based nizational learning and growth. Costing by Robin Cooper and Robert S. Kaplan BOOK Harvard Business Review The Balanced Scorecard: Translating May–June 1991 Strategy Into Action Product no. 3588 by Robert S. Kaplan and David P. Norton Harvard Business School Press When used as the financial metric of a bal- 1996 anced scorecard, activity-based costing (ABC) Product no. 6513 can help managers find the places in their organizations where improvement is likely to Developing and using a balanced scorecard have the greatest payoff. ABC involves sepa- helps executives solve what is perhaps their rating whatever expenses are required to pro- most central issue: how to implement strat- duce individual products from those required egy, particularly one that requires radical To Order to process batches, to maintain a product, or change. This book builds on the authors’ three to keep a manufacturing facility up and run- Harvard Business Review articles, providing ad- For reprints, Harvard Business Review ning. Since management cannot control costs ditional insight into the mechanics of choos- OnPoint orders, and subscriptions at the aggregate level of cost of goods sold or ing measures for each of the four scorecard to Harvard Business Review: administrative expenses, ABC analysis pro- perspectives. Extended examples from indus- Call 800-988-0886 or 617-783-7500. vides a valuable tool that enables managers tries such as oil, banking, insurance, and retail- Go to www.hbr.org to look into a specific part of the business and ing demonstrate how companies have built at all of its related activities. By looking at how scorecards tailored to their particular compet- For customized and quantity orders those activities are linked to revenue genera- itive challenges and strategic goals. of reprints and Harvard Business tion and expenses, managers can understand Review OnPoint products: the cause-and-effect relationships and pin- Call Frank Tamoshunas at point the changes required to increase profits. 617-783-7626, or e-mail him at [email protected]

page 48 TOOL KIT

4th article from the collection: Focusing Your Organization on Strategy—with the Balanced Score- card, 2nd Edition Having Trouble with Your Strategy? Then Map It

by Robert S. Kaplan and David P. Norton

Included with this full-text Harvard Business Review article:

50 Article Summary The Idea in Brief—the core idea The Idea in Practice—putting the idea to work

51 Having Trouble with Your Strategy? Then Map It

61 Further Reading A list of related materials, with annotations to guide further exploration of the article’s ideas and applications

Product 5165

page 49 T OOL KIT Having Trouble with Your Strategy? Then Map It

The Idea in Brief The Idea in Practice How does Mobil make sure that every gas WHY STRATEGY MAPS? • Internal Processes. Identify operational, station owner understands the company’s Strategy maps are essential in the information customer-relationship, and innovation strategy—and implements it each time a age, when intangible assets—customer rela- processes to support your customer and customer drives up to his pumps? How did tionships, employee skills, the ability to inno- financial goals. Mobil become the industry’s profit leader vate—are competitive advantages. But these Example: and boost its cash flow by $1 billion+ per assets have value only within the context of a Mobil reduced environmental and safety year? By using a strategy map—a powerful strategy. incidents (operational), built best-in-class new tool built on the balanced scorecard. For example, a growth-oriented strategy franchise teams (customer relationships), The balanced scorecard measures your might require in-depth customer knowledge, and developed non-gasoline services (in- company’s performance from four perspec- sales training, and incentive-based compen- novation). tives—financial, customer, internal processes, sation. But none of these, alone, would be • Learning and Growth. Define the skills, and learning and growth. A strategy map is enough to implement that strategy. Strategy technologies, and corporate culture a visual framework for the corporate objec- maps quantify the value of tangible and intan- needed to support your strategy. tives within those four areas. The authors gible assets—linking them all to your over- created strategy map templates for various arching strategy. Example: industries, including retail, telecommunica- Mobil’s objectives were: increase employee tions, and e-commerce. BUILDING YOUR STRATEGY MAP knowledge of refining business; nurture leadership skills necessary to articulate its Strategy maps put into focus the often- Step 1. vision. blurry line of sight between your corporate Clarify your mission and strategic vision. Mobil strategy and what your employees do sought “to be the best integrated refiner- Mobil’s strategy map linked the four perspec- every day—significantly enhancing collab- marketer in the U.S. by efficiently delivering tives, providing all its business units clear di- oration and coordination. unprecedented value to customers.” rection for creating their own more detailed maps. Step 2. Specify objectives in the four scorecard areas to realize your company’s vision. • Financial. Balance revenue growth and productivity improvement.

Example: Mobil grew revenue by selling more nongasoline products and services and more premium gas. It improved productivity by slashing operating expenses (e.g., reducing refinery downtime). • Customer. Differentiate your firm from competitors. Choose one of these value propositions: operational excellence, customer intimacy, or product leadership.

Example: Mobil emphasized customer intimacy, tar- geting premium customers by offering fast, friendly, and safe service. Satisfied customers gladly paid more. COPYRIGHT © 2000 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

page 50 The key to executing your strategy is to have people in your organization understand it—including the crucial but perplexing processes by which intangible assets will be converted into tangible outcomes. Strategy maps can help chart this difficult terrain.

TOOL KIT Having Trouble with Your Strategy? Then Map It

by Robert S. Kaplan and David P. Norton

Imagine that you are a general taking your give employees a clear line of sight into how troops into foreign territory. Obviously, you their jobs are linked to the overall objectives of would need detailed maps showing the impor- the organization, enabling them to work in a tant towns and villages, the surrounding land- coordinated, collaborative fashion toward the scape, key structures like bridges and tunnels, company’s desired goals. The maps provide a and the roads and highways that traverse the visual representation of a company’s critical region. Without such information, you objectives and the crucial relationships among couldn’t communicate your campaign strat- them that drive organizational performance. egy to your field officers and the rest of your Strategy maps can depict objectives for rev- troops. enue growth; targeted customer markets in Unfortunately, many top executives are try- which profitable growth will occur; value prop- ing to do just that. When attempting to imple- ositions that will lead to customers doing more ment their business strategies, they give em- business and at higher margins; the key role of ployees only limited descriptions of what they innovation and excellence in products, ser- should do and why those tasks are important. vices, and processes; and the investments re- Without clearer and more detailed informa- quired in people and systems to generate and tion, it’s no wonder that many companies have sustain the projected growth. failed in executing their strategies. After all, Strategy maps show the cause-and-effect how can people carry out a plan that they links by which specific improvements create don’t fully understand? Organizations need desired outcomes—for example, how faster tools for communicating both their strategy process-cycle times and enhanced employee and the processes and systems that will help capabilities will increase retention of custom- them implement that strategy. ers and thus increase a company’s revenues. Strategy maps provide such a tool. They From a larger perspective, strategy maps COPYRIGHT © 2000 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

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show how an organization will convert its initi- ficiencies (the internal processes) that deliver atives and resources—including intangible as- specific value to the market (the customers), sets such as corporate culture and employee which will eventually lead to higher share- knowledge—into tangible outcomes. holder value (the financials). Since we introduced the concept in 1992, Why Strategy Maps? we have worked with hundreds of executive In the industrial age, companies created value teams from various organizations, in both the by transforming raw materials into finished private and public sectors. From this extensive products. The economy was primarily based research, we have noticed certain patterns and on tangible assets—inventory, land, factories, have brought them into a common visual and equipment—and an organization could framework—a strategy map—that embeds the describe and document its business strategy different items on an organization’s balanced by using financial tools such as general led- scorecard into a cause-and-effect chain, con- gers, income statements, and balance sheets. necting desired outcomes with the drivers of In the information age, businesses must in- those results. creasingly create and deploy intangible as- We have developed strategy maps for com- sets—for instance, customer relationships; em- panies in various industries, including insur- ployee skills and knowledge; information ance, banking, retail, health care, chemicals, technologies; and a corporate culture that en- energy, telecommunications, and e-commerce. courages innovation, problem solving, and The maps have also been useful for nonprofit general organizational improvements. organizations and government units. From Even though intangible assets have become this experience, we have developed a standard major sources of competitive advantage, no template that executives can use to develop tools existed to describe them and the value their own strategy maps. (See the exhibit “The they can create. The main difficulty is that the Balanced Scorecard Strategy Map.”) The tem- value of intangible assets depends on their or- plate contains four distinct regions—financial, ganizational context and a company’s strategy. customer, internal process, and learning and For example, a growth-oriented sales strategy growth—that correspond to the four perspec- might require knowledge about customers, ad- tives of the balanced scorecard. ditional training for salespeople, new data- The template provides a common frame- bases and information systems, a different or- work and language that can be used to de- ganizational structure, and an incentive-based scribe any strategy, much like financial state- compensation program. Investing in just one ments provide a generally accepted structure of those items—or in a few of them but not for describing financial performance. A strat- all—would cause the strategy to fail. The value egy map enables an organization to describe Robert S. Kaplan ([email protected]) is of an intangible asset such as a customer data- and illustrate, in clear and general language, the Marvin Bower Professor of Leader- base cannot be considered separately from the its objectives, initiatives, and targets; the mea- ship Development at Harvard Business organizational processes that will transform it sures used to assess its performance (such as School in Boston. David P. Norton and other assets—both intangible and tangi- market share and customer surveys); and the ([email protected]) is founder and ble—into customer and financial outcomes. linkages that are the foundation for strategic president of the Balanced Scorecard The value does not reside in any individual in- direction. Collaborative (www.bscol.com) based tangible asset. It arises from the entire set of To understand how a strategy map is built, in Lincoln, Massachusetts. This article is assets and the strategy that links them to- we will study Mobil North American Market- adapted from their book The Strategy- gether. ing and Refining, which executed a new strat- Focused Organization: How Balanced To understand how organizations create egy to reconstruct itself from a centrally con- Scorecard Companies Thrive in the value in the information age, we developed trolled manufacturer of commodity products New Business Environment (Harvard the balanced scorecard, which measures a to a decentralized, customer-driven organiza- Business School Press, September company’s performance from four major per- tion. As a result, Mobil increased its operating 2000). The strategy maps concept was spectives: financial, customer, internal process, cash flow by more than $1 billion per year and 1 introduced in issues of The Balanced and learning and growth. Briefly summarized, became the industry’s profit leader. Scorecard Report, a newsletter pub- balanced scorecards tell you the knowledge, lished jointly by the Balanced Score- skills, and systems that your employees will From the Top Down card Collaborative and Harvard Busi- need (their learning and growth) to innovate The best way to build strategy maps is from ness School Publishing. and build the right strategic capabilities and ef- the top down, starting with the destination harvard business review • september–october 2000 page 52 Having Trouble with Your Strategy? Then Map It • TOOL KIT

and then charting the routes that will lead exhibit “Mobil’s Strategy Map.”) there. Corporate executives should first re- The revenue growth strategy called for view their mission statement and their core Mobil to expand sales outside of gasoline by of- values—why their company exists and what it fering convenience store products and ser- believes in. With that information, managers vices, ancillary automotive services (car can develop a strategic vision, or what the washes, oil changes, and minor repairs), auto- company wants to become. This vision should motive products (oil, antifreeze, and wiper create a clear picture of the company’s overall fluid), and common replacement parts (tires goal—for example, to become the profit and wiper blades). Also, the company would leader in an industry. A strategy must then de- sell more premium brands to customers, and it fine the logic of how to arrive at that destina- would increase sales faster than the industry tion. average. In terms of productivity, Mobil Financial Perspective. Building a strategy wanted to slash operating expenses per gallon map typically starts with a financial strategy sold to the lowest level in the industry and ex- for increasing shareholder value. (Nonprofit tract more from existing assets—for example, and government units often place their cus- by reducing the downtime at its oil refineries tomers or constituents—not the financials—at and increasing their yields. the top of their strategy maps.) Companies Customer Perspective. The core of any have two basic levers for their financial strat- business strategy is the customer value propo- egy: revenue growth and productivity. The sition, which describes the unique mix of former generally has two components: build product and service attributes, customer rela- the franchise with revenue from new markets, tions, and corporate image that a company of- new products, and new customers; and in- fers. It defines how the organization will dif- crease value to existing customers by deepen- ferentiate itself from competitors to attract, ing relationships with them through expanded retain, and deepen relationships with targeted sales—for example, cross-selling products or customers. The value proposition is crucial be- offering bundled products instead of single cause it helps an organization connect its in- products. The productivity strategy also usu- ternal processes to improved outcomes with ally has two parts: improve the company’s cost its customers. structure by reducing direct and indirect ex- Typically, the value proposition is chosen penses, and use assets more efficiently by re- from among three differentiators: operational ducing the working and fixed capital needed to excellence (for example, McDonald’s and Dell support a given level of business. Computer), customer intimacy (for example, In general, the productivity strategy yields Home Depot and IBM in the 1960s and 1970s), results sooner than the growth strategy. But and product leadership (for example, Intel and one of the principal contributions of a strategy Sony).2 Companies strive to excel in one of the map is to highlight the opportunities for en- three areas while maintaining threshold stan- hancing financial performance through reve- dards in the other two. By identifying its cus- nue growth, not just by cost reduction and im- tomer value proposition, a company will then proved asset utilization. Also, balancing the know which classes and types of customers to two strategies helps to ensure that cost and target. In our research, we have found that al- asset reductions do not compromise a com- though a clear definition of the value proposi- pany’s growth opportunities with customers. tion is the single most important step in devel- Mobil’s stated strategic vision was “to be the oping a strategy, approximately three-quarters best integrated refiner-marketer in the United of executive teams do not have consensus States by efficiently delivering unprecedented about this basic information. value to customers.” The company’s high-level The inset of the exhibit “The Balanced financial goal was to increase its return on cap- Scorecard Strategy Map” highlights the differ- ital employed by more than six percentage ent objectives for the three generic strategy points within three years. To achieve that, ex- concepts of operational excellence, customer ecutives used all four of the drivers of a finan- intimacy, and product leadership. Specifically, cial strategy that we break out in the strategy companies that pursue a strategy of opera- map—two for revenue growth and two for tional excellence need to excel at competitive productivity. (See the financial portion of the pricing, product quality and selection, speedy

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order fulfillment, and on-time delivery. For representing nearly 60% of the market might customer intimacy, an organization must be willing to pay significant price premiums stress the quality of its relationships with cus- for gasoline if they could buy at stations that tomers, including exceptional service and the were fast, friendly, and outfitted with excellent completeness of the solutions it offers. And convenience stores. With this information, companies that pursue a product leadership Mobil made the crucial decision to adopt a strategy must concentrate on the functional- “differentiated value proposition.” The com- ity, features, and overall performance of its pany would target the premium customer seg- products or services. ments by offering them immediate access to Mobil, in the past, had attempted to sell a gasoline pumps, each equipped with a self-pay- full range of products and services to all con- ment mechanism; safe, well-lit stations; clean sumers, while still matching the low prices of restrooms; convenience stores stocked with nearby discount stations. But this unfocused fresh, high-quality merchandise; and friendly strategy had failed, leading to poor financial employees. performance in the early ’90s. Through mar- Mobil decided that the consumer’s buying ket research, Mobil discovered that price-sensi- experience was so central to its strategy that it tive consumers represented only about 20% of invested in a new system for measuring its gasoline purchasers, while consumer segments progress in this area. Each month, the com-

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pany sent “mystery shoppers” to purchase fuel Thus, Mobil’s complete customer strategy and a snack at every Mobil station nationwide motivated independent dealers to deliver a and then asked the shoppers to evaluate their great buying experience that would attract an buying experience based on 23 specific criteria. increasing share of targeted consumers. These Thus, Mobil could use a fairly simple set of consumers would buy products and services at metrics (share of targeted customer segments premium prices, increasing profits for both and a summary score from the mystery shop- Mobil and its dealers, who would then con- pers) for its consumer objectives. tinue to be motivated to offer the great buying But Mobil does not sell directly to consum- experience. And this virtuous cycle would gen- ers. The company’s immediate customers are erate the revenue growth for Mobil’s financial the independent owners of gasoline stations. strategy. Note that the objectives in the cus- These franchised retailers purchase gasoline tomer perspective portion of Mobil’s strategy and other products from Mobil and sell them map were not generic, undifferentiated items to consumers in Mobil-branded stations. Be- like “customer satisfaction.” Instead, they were cause dealers were such a critical part of the specific and focused on the company’s strat- new strategy, Mobil included two additional egy. metrics to its customer perspective: dealer Internal Process Perspective. Once an or- profitability and dealer satisfaction. ganization has a clear picture of its customer

The Balanced Scorecard Strategy Map

Strategy maps show how an organization plans to convert its various assets into desired outcomes. Com- panies can use the template here to develop their own strategy maps, which are based on the balanced scorecard. At far left, from bottom to top, the template shows how employees need certain knowledge, skills, and systems (learning and growth perspective) to innovate and build the right strategic capabilities and efficiencies (internal process perspective) so that they can deliver specific value to the market (customer perspective), which will lead to higher shareholder value (financial perspective). For the customer perspective, companies typically select one of three strategies: operational excellence, customer intimacy, or product leadership.

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and financial perspectives, it can then determine the means by which it will achieve the Mobil’s differentiated value proposition for customers and the productivity improvements to reach Strategy Map its financial objectives. The internal process perspective captures these critical organiza- Shown here is a map for the strategy that tional activities, which fall into four high-level Mobil North American Marketing and Re- processes: build the franchise by innovating fining used to transform itself from a cen- with new products and services and by pene- trally controlled manufacturer of com- trating new markets and customer segments; modity products to a decentralized increase customer value by deepening rela- customer-driven organization. A major tionships with existing customers; achieve op- part of the strategy was to target consum- erational excellence by improving supply ers who were willing to pay price premi- chain management, the cost, quality, and ums for gasoline if they could buy at fast, cycle time of internal processes, asset utiliza- friendly stations that were outfitted with tion, and capacity management; and become excellent convenience stores. Their pur- a good corporate citizen by establishing effec- chases enabled Mobil to increase its profit tive relationships with external stakeholders. margins and its revenue from nongaso- An important caveat to remember here is line products. Using the strategy map that while many companies espouse a strategy shown here, Mobil increased its operating that calls for innovation or for developing cash flow by more than $1 billion per year. value-adding customer relationships, they mis- takenly choose to measure only the cost and quality of their operations—and not their in- novations or their customer management processes. These companies have a complete dis- connect between their strategy and how they measure it. Not surprisingly, these organizations typically have great difficulty implementing their growth strategies. The financial benefits from improved business processes typically reveal themselves in stages. Cost savings from increased operational efficiencies and process improvements create short-term benefits. Revenue growth from enhanced customer relationships accrues in the intermediate term. And increased innovation can produce long-term revenue and margin improvements. Thus, a complete strategy should involve generating returns from all three of these internal processes. (See the internal process portion of the exhibit “Mobil’s Strategy Map.”) **To account for Mobil’s independent- Mobil’s internal process objectives included dealer customers—not just consum- building the franchise by developing new ers—the company adapted the strategy products and services, such as sales from con- map template to factor in dealer rela- venience stores; and enhancing customer tionships. value by training dealers to become better managers and by helping them generate profits from nongasoline products and services. The plan was that if dealers could capture increased revenues and profits from products other than gasoline, they could then rely less on gasoline sales, allowing Mobil to capture a

harvard business review • september–october 2000 page 56 Having Trouble with Your Strategy? Then Map It • TOOL KIT

harvard business review • september–october 2000 page 57 Having Trouble with Your Strategy? Then Map It • TOOL KIT

larger profit share of its sales of gasoline to any higher costs incurred in its basic manufac- dealers. turing and distribution operations. Conse- For its customer intimacy strategy, Mobil quently, the company had to focus heavily on had to excel at understanding its consumer achieving operational excellence throughout segments. And because Mobil doesn’t sell di- its value chain of operations. rectly to consumers, the company also had to Finally, as part of both its operational-excel- concentrate on building best-in-class franchise lence and corporate-citizen themes, Mobil teams. wanted to eliminate environmental and safety Interestingly, Mobil placed a heavy empha- accidents. Executives believed that if there sis on objectives to improve its basic refining were injuries and other problems at work, and distribution operations, such as lowering then employees were probably not paying suf- operating costs, reducing the downtime of ficient attention to their jobs. equipment, and improving product quality Learning and Growth Perspective. The and the number of on-time deliveries. foundation of any strategy map is the learning When a company such as Mobil adopts a and growth perspective, which defines the customer intimacy strategy, it usually focuses core competencies and skills, the technolo- on its customer management processes. But gies, and the corporate culture needed to sup- Mobil’s differentiation occurred at the dealer port an organization’s strategy. These objec- locations, not at its own facilities, which basi- tives enable a company to align its human cally produced commodity products (gasoline, resources and information technology with its heating oil, and jet fuel). So Mobil could not strategy. Specifically, the organization must charge its dealers higher prices to make up for determine how it will satisfy the requirements

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from critical internal processes, the differenti- to the strategy as the projected outcome of the ated value proposition, and customer relation- strategy. ships. Although executive teams readily ac- Another limitation occurs when companies knowledge the importance of the learning and build key performance indicator (KPI) score- growth perspective, they generally have trou- cards. For example, one financial services orga- ble defining the corresponding objectives. nization identified the four Ps in its balanced Mobil identified that its employees needed scorecard: profits, portfolio (the volume of to gain a broader understanding of the market- loans), process (the percentage of processes ing and refining business from end to end. Ad- that are ISO certified), and people (the diver- ditionally, the company knew it had to nurture sity of new employees). Although this ap- the leadership skills that were necessary for its proach was more balanced than using just fi- managers to articulate the company’s vision nancial measures, a comparison of the four Ps and develop employees. Mobil identified key with a strategy map revealed several missing technologies that it had to develop, including components: no customer measures, only a automated equipment for monitoring the re- single internal-process metric—which was fo- fining processes and extensive databases and cused on an initiative, not an outcome—and tools to analyze consumers’ buying experi- no defined role for information technology, a ences. strange omission for a financial services orga- Upon completing its learning and growth nization. In actuality, KPI scorecards are an ad perspective, Mobil now had a complete strat- hoc collection of measures, a checklist, or per- egy map linked across the four major perspec- haps elements in a compensation plan, but tives, from which Mobil’s different business they don’t describe a coherent strategy. Unless units and service departments could develop the link to strategy has been clearly thought their own detailed maps for their respective through, a KPI scorecard can be a dangerous il- operations. This process helped the company lusion. detect and fill major gaps in the strategies Perhaps the greatest benefit of strategy being implemented at lower levels of the orga- maps is their ability to communicate strategy nization. For example, senior management no- to an entire organization. The power of doing ticed that one business unit had no objectives so is amply demonstrated by the story of how or metrics for dealers (see the exhibit “What’s Mobil developed Speedpass, a small device car- Missing?”). Had this unit discovered how to by- ried on a keychain that, when waved in front pass dealers and sell gasoline directly to con- of a photocell on a gasoline pump, identifies sumers? Were dealer relationships no longer the consumer and charges the appropriate strategic for this unit? Another business unit credit or debit card for the purchase. The idea had no measure for quality. Had the unit for Speedpass came from a planning manager achieved perfection? Strategy maps can help in the marketing technology group who uncover and remedy such omissions. learned from Mobil’s balanced scorecard Strategy maps also help identify when about the importance of speed in the purchas- scorecards are not truly strategic. Many organi- ing transaction. He came up with the concept zations have built stakeholder scorecards, not of a device that could automatically handle the strategy scorecards, by developing a seemingly entire purchasing transaction. He worked with balanced measurement system around three a gasoline-pump manufacturer and a semicon- dominant groups of constituents: employees, ductor company to turn that idea into reality. customers, and shareholders. A strategy, how- After its introduction, Speedpass soon became ever, must describe how a company will a strong differentiator for Mobil’s value propo- achieve its desired outcome of satisfying em- sition of fast, friendly service. From 1997 on, ployees, customers, and shareholders. The executives modified Mobil’s balanced score- “how” must include the value proposition in card to include new objectives for the number the customer perspective; the innovation, cus- of consumers and dealers that adopted Speed- tomer management, and operating processes pass. in the internal process perspective; and the With all its employees now aligned to the employee skills and information technology new strategy, Mobil North American Market- capabilities in the learning and growth per- ing and Refining executed a remarkable turn- spective. These elements are as fundamental around in less than two years to become the in-

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dustry’s profit leader from 1995 up through its executives to take early corrective actions. Ex- merger with Exxon in late 1999. The division ecutives can also use the maps as the founda- increased its return on capital employed from tion for a management system that can help 6% to 16%; sales growth exceeded the industry an organization implement its growth initia- average by more than 2% annually; cash ex- tives effectively and rapidly. penses decreased by 20%; and in 1998, the divi- Strategy implies the movement of an orga- sion’s operating cash flow was more than $1 nization from its present position to a desir- billion per year higher than at the launch of able but uncertain future position. Because the the new strategy. organization has never been to this future These impressive financial results were place, the pathway to it consists of a series of driven by improvements throughout Mobil’s linked hypotheses. A strategy map specifies strategy map: mystery-shopper scores and these cause-and-effect relationships, which dealer quality increased each year; the number makes them explicit and testable. The key, of consumers using Speedpass grew by one then, to implementing strategy is to have ev- million annually; environmental and safety ac- eryone in the organization clearly understand cidents plunged between 60% and 80%; lost the underlying hypotheses, to align all organi- oil-refinery yields due to systems downtime zational units and resources with those hy- dropped by 70%; and employee awareness and potheses, to test the hypotheses continually, commitment to the strategy more than qua- and to use those results to adapt as required. drupled.

1. See Robert S. Kaplan and David P. Norton’s, The Balanced Not an Art Form Scorecard: Translating Strategy into Action (Harvard Busi- We do not claim to have made a science of ness School Press, 1996). strategy; the formulation of great strategies is 2. These three generic value propositions were initially ar- an art, and it will always remain so. But the ticulated in Michael Treacy and Fred Wiersema’s The Disci- description of strategy should not be an art. If pline of Market Leaders (Addison-Wesley, 1995). people can describe strategy in a more disci- plined way, they will increase the likelihood of Reprint R00509; Harvard Business Review its successful implementation. Strategy maps OnPoint 5165 will help organizations view their strategies in To order, see the next page a cohesive, integrated, and systematic way. or call 800-988-0886 or 617-783-7500 They often expose gaps in strategies, enabling or go to www.hbr.org

harvard business review • september–october 2000 page 60 T OOL KIT Having Trouble with Your Strategy? Then Map It

Further Reading ARTICLES BOOKS The Balanced Scorecard—Measures that The Balanced Scorecard: Translating Drive Performance Strategy into Action by Robert S. Kaplan and David P. Norton by Robert S. Kaplan and David P. Norton Harvard Business Review Harvard Business School Press January–February 1992 1996 Product no. 4096 Product no. 6513 This article introduced the balanced scorecard— Your balanced scorecard and strategy map and lays the foundation for understanding strat- help you focus on implementing strategy. This egy maps. It clarifies why no single perspective book provides greater insight into how to fully captures a company’s health. Instead, bal- choose objectives and metrics to guide your ance four perspectives—financial, customer, in- strategy execution. Extended examples show ternal business processes, and innovation and how actual companies have used these tools. learning—and track performance in each. The Strategy-Focused Organization: How Putting the Balanced Scorecard to Work Balanced Scorecard Companies Thrive in by Robert S. Kaplan and David P. Norton the New Business Environment Harvard Business Review by Robert S. Kaplan and David P. Norton September–October 1993 Harvard Business School Press Product no. 4118 2000 Product no. 2506 Before building your strategy map, learn how to create a balanced scorecard that reflects your This latest book by Kaplan and Norton expands company’s mission and strategy. Define corpo- on the theme of strategy focus and execution. rate objectives and metrics within each of the four They emphasize the importance of making strat- scorecard perspectives. These metrics will clarify egy absolutely clear to—and a continuous pro- how different you’ll look to customers and share- cess for—everyone. Drawing on 10 years of re- holders when you reach your goals. They will also search into more than 200 companies, the indicate how your internal processes, as well as authors use in-depth case examples to show your ability to innovate and grow, should change. how balanced scorecard adopters have taken this groundbreaking tool to the next level—put- Using the Balanced Scorecard as a ting strategy at the center of management pro- Strategic Management System To Order cesses and systems. This research resulted in a by Robert S. Kaplan and David P. Norton series of industry-specific strategy maps that any Harvard Business Review For reprints, Harvard Business Review company can use to build its own. January–February 1996 OnPoint orders, and subscriptions Product no. 4126 NEWSLETTER to Harvard Business Review: Balanced Scorecard Report Call 800-988-0886 or 617-783-7500. A strategy map helps employees know how This newsletter is published by the Balanced Go to www.hbr.org their everyday actions support the company’s Scorecard Collaborative and Harvard Business goals. This article outlines four steps for ensur- School Publishing. It brings you the most cur- For customized and quantity orders ing that those short-term actions lead to the rent thinking of scorecard originators Robert of reprints and Harvard Business right outcomes: 1) Communicate strategy Kaplan and David Norton, along with exclusive Review OnPoint products: throughout the organization. 2) Align unit and field reports, case studies, and analysis. Call Frank Tamoshunas at individual goals with the strategy. 3) Link strate- 617-783-7626, gic objectives to long-term targets and bud- or e-mail him at gets. 4) Conduct performance reviews to hone [email protected] the strategy.

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