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Balanced Scorecards in the Federal Government.

Research findings on how 15 federal organizations are using this analytic tool.

The purpose of this article is to provide useful information to federal managers who are considering the use of balanced scorecards (BSC) in their organizations. It includes insights from the private sector where BSCs were first introduced, and from 15 federal organizations that have used scorecards for one or more years.

What Is a Balanced Scorecard?

Measuring and reporting the performance of private sector organizations has been an important activity as long as businesses have needed to demonstrate their financial condition to current and perspective investors. Profit and loss statements, balance sheets, and cash flow statements have served as the basis for obtaining capital, distributing dividends, rewarding leaders, assuring solvency, and other functions. In 1858, the Borden Company produced the first annual report that contained a "story" to explain and supplement the numbers.

More recently corporations have turned to "nontraditional," i.e., nonfinancial, performance measures in an attempt to improve their performance, in a belief that financial measures alone are too historical, lack predictive power, and focus on input and intermediate outcomes rather than long-term performance. Typical financial measures (including stock prices) are increasingly seen as too short-term and often rewarding decisions detrimental to the long-term success of the organization. Finally, there is a growing recognition that nonfinancial assets, such as intellectual capital, customer loyalty, and employee commitment, are key components of the company's success and must be monitored as skillfully as financial measures. There is no consensus on the precise nonfinancial measures that will best complement historical financial measures; but the perspectives and measures found in the BSC model have found widespread acceptance and use.

One corporate executive described a balanced business scorecard as:

...an information-based management tool that translates strategic objectives into a coherent set of performance measures. We start with the vision. What are the critical success factors? What are our targets, initiatives, and what is the review process to ensure that this balanced business scorecard is the key management tool to run the business? And, finally, how do we tie in the incentives?

Robert Kaplan and David Norton of Harvard University are widely credited with creating the defining characteristics of the scorecard approach. They have demonstrated that using a scorecard helps companies translate vision and strategy into action and high performance. The scorecard model they most frequently describe contains four perspectives. Within each of these perspectives companies develop objectives, measures, targets, and finally initiatives. Kaplan and Norton make a critical distinction between strategic and diagnostic measures, and as a consequence suggest that a scorecard should contain a limited number of objectives and measures, typically 15 to 25.

Balanced Scorecards in the Private Sector

Companies have reported that the decision to design and install BSC s was not simply based on a desire for improved financial performance. Scorecards have been installed to:

* evoke strategic thinking at multiple levels in the organization;

* increase self assessment and management;

* demonstrate the contribution of support functions to the organization; and

* encourage and reward planning.

Bain & Company, an international consulting company, conducts an annual survey of companies to determine the level of usage and satisfaction of management tools and techniques. The 250 companies that participated in the survey results published in 1999 represent a variety of industries, including manufacturing, service, consumer products, information technology, healthcare, utilities, and others. The survey indicated that scorecards were in use in 42 percent of the reporting companies. This level is substantially lower than that of some older tools; however, balanced scorecard usage is predicted to be one of two techniques most likely to increase in usage over the next few years.

Conclusions can be drawn from industry's experience with the scorecard approach relevant to federal managers:

* The scorecard approach can be used to meet a variety of organizational needs.

* The scorecard approach provides structure but is also flexible thus providing a useful conceptual structure for the building effort while permitting customization to meet diverse situations.

* The sequential development of goals and measures provides opportunities to resolve discordant visions held by key members in the organization.

* The development of targets and articulated initiatives to reach the targets assures that the scorecard will drive organizational activities, resources and energy.

* Limiting the number of goals and measures in each scorecard focuses attention on strategic measures and simplifies communication with all interested parties.

The Attractiveness of Balanced Scorecards

Federal managers continue to search for management processes that improve the efficiency and effectiveness of their programs. The scorecard approach is attractive for a number of reasons.

* Scorecard principles can be applied at a variety of organizational levels allowing for top-down, bottom-up, or "both ways from the middle" implementation.

* Limiting the number of metrics greatly reduces data collection and analysis efforts.

* The "employee perspective" adds a human perspective to the management process.

* The scorecard approach recognizes and "operationalizes" the emphasis on customer service.

* Scorecards can be used as interventions for a variety of purposes.

* The synergistic relationship that exists between scorecard perspectives provides a structure that ties together the critical perspectives of the organization.

* Initiatives are an integral component of scorecards that increase the probability of meeting targets.

The growing interest in BSCs has precipitated the establishment of a balanced scorecard interest group including over 75 federal employees. The interest group meets monthly to share experiences and insights. (Contact the author at jakebarkdoll@usc.edu for additional information.)

Scorecards in 15 Federal Organizations

Data were collected from 15 federal organizations that had at least one year of experience. This research was supported by a grant from the PricewaterhouseCoopers Endowment for the Business of Government. Potential participants were identified through literature searches, word of mouth, announcements at meetings, and email announcements to federal employees involved in the Government Performance and Results Act implementation. Many of the potential participants were identified through multiple references.

Potential participants were screened to assure they had at least one year of experience, and 15 were subsequently invited to help shape the research by selecting the topics of most immediate interest. The participating organizations expressed an immediate interest in descriptive rather than prescriptive research. They wanted to know more about the characteristics and structure of scorecards in other federal organizations. An e-mail-based survey was developed and distributed to collect the desired information. All 15 respondents responded and provide valuable insights based on their experiences. These insights fall into nine topical areas.

Clusters. Scorecards exist in clusters and the scorecards in these clusters are connected in one of three ways: (1) the scorecards draw different data from one or more common data collection activities, e.g. employee attitude surveys; (2) the scorecards are hierarchically related with data from one scorecard "feeding" the scorecard at the next level; or (3) the scorecards are connected by common management activities such as quarterly reviews. The median number of scorecards in these networks is 12, and the combined number of individual scorecards in the networks is estimated to be between 100 and 200.

Used in Staff Functions

Scorecards are more commonly used in staff functions than in line activities. Only two of the respondents described scorecards being used exclusively in line organizations although five described combination (line and staff) applications. On the other hand, eight respondents described scorecards being used exclusively in staff functions. Seven of the staff applications included a procurement or acquisition function. The concentration of procurement organizations can be traced to members of the Procurement Executives Association who started a performance measurement and management initiative in 1993 that subsequently evolved into scorecards.

Scorecard Network

Scorecards are spreading through word of mouth. Respondents reported that their scorecard network was: (1) established because they observed a scorecard in another organization; and/or (2) the creation of their scorecard has precipitated the development of additional scorecards in other organizations.

Similar to Private Sector. Scorecards in the public sector have perspectives that look a lot like the perspectives in private sector scorecards. Almost two-thirds of the respondents reported that their scorecards contained the four perspectives typically found in corporate scorecards. The remaining organizations typically have five rather than four perspectives. These organizations typically divide the learning and growth perspective into an "employee" perspective and a "learning organization" perspective thus doubling the emphasis on the organization's human resources.

All Sized Organizations

Scorecards are being used in all sized organizations. The number of employees in organizations using scorecards ranged from eight to thousands. Similarly, the number of customers ranged from 10 to thousands.

Few goals and measures. Scorecards focus on a relatively few goals and measures. All of the federal scorecards contain fewer than 30 goals and fewer than 40 measures. The typical scorecard has about 15 goals and about 25 measures.

Link to initiatives. The public sector scorecards are most unlike their private sector counterparts with respect to initiatives. Approximately half specifically mentioned the use of initiatives although some of these indicated the initiatives are part of a companion management process such as strategic planning.

Dynamic process. Scorecard development and use is a very dynamic process. All of the respondents reported one of two situations: (1) their scorecards are still under development; or (2) development of their scorecards is complete, but they are now involved in refining or redesigning the scorecards.

Management tool. Some scorecards have become important management tools. About two-thirds of the respondents reported that they had become important management tools either as standalone entities or in conjunction with other management tools such as business plans. The other third reported that they were not yet central to the management of their organizations. All respondents predicted that they were likely to increase in importance in the future.

Lessons Learned

Each of the 15 respondents shared lessons they had learned during their scorecard building activities. The majority of these lessons learned fell into four categories:

Communicate continuously with all stakeholders. The stakeholders mentioned included managers, employees, customers, and senior leadership. The topics to be communicated included: (1) why the scorecard is being developed; (2) how it will be used; (3) what it is measuring; (4) initiatives being undertaken to reach the targets; and (5) what is happening as a result of the data being collected and reported. Many respondents reported that the communication should be two-way in order to inform, engage, and empower all stakeholders.

Keep it simple and be flexible. Several respondents learned the "keep it simple" lesson the hard way. In one instance the organization had to abandon a scorecard that encompassed too many diverse functions. In this case scorecards were successfully implemented at a lower level of the organization that encompassed a more homogeneous set of activities. In a second case the original scorecard contained too many measures. In a third case the original measures that had been selected by "headquarters" were replaced by measures meaningful to the operating units.

Start slow and plan for many iterations. Specific suggestions for increasing the probability of success included: (1) start with some measures even if they aren't perfect; (2) use initial data to revise and improve measures; (3) pilot the model in a few organizations and learn from the experience; and (4) learn from what others have done but recognize that every scorecard is unique.

Special skills and a special effort are needed. Designing and installing a set of scorecards involves a number of steps, and each step requires time, effort, and special skills. Respondents emphasized the following steps: (1) conduct an environmental scan and develop a meaningful vision statement; (2) develop metrics that measure the right thing; (3) develop top-notch survey mechanisms; (4) use Intranet methods to collect data; (5) turn data into useful information; and (5) develop initiatives and action plans.

Conclusion

In theory, scorecards are a potentially valuable addition to the federal manager's toolbox of approaches and techniques. However, most federal managers have experienced failures with at least one other technique that initially appeared theoretically useful. Fortunately a great deal has been learned and shared by private sector managers who have implemented scorecards. In addition there is a valuable collection of lessons learned from the growing number of scorecard applications underway in federal agencies.

Jake Barkdoll is a professor of public administration at the University of Southern California's Washington Center.
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Title Annotation:use of management tool
Author:BARKDOLL, JAKE
Publication:The Public Manager
Geographic Code:1USA
Date:Sep 22, 2000
Words:2030
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