USING A BALANCED SCORECARD TO IMPLEMENT STRATEGY
By Dr. Nancy Nygreen, Nygreen Management, Bedford, New York
and Dr. John Lingle, The Metrus Group, Somerville, New Jersey
Management Tool for Strategy Implementation.
The Balanced Scorecard is a strategy implementation tool initially
proposed by Robert Kaplan and David Norton of the Harvard Business School (Harvard
Business Review, Jan-Feb 1992). It calls for a set of measures that are
carefully balanced according to a variety of criteria (unique and generic,
leading and lagging, short- and long-term, hard and soft, financial and
non-financial), and that are used to help align an organization around its
strategy, to test the strategic assumptions, and to monitor progress in
An analogy to understand the balanced scorecard is an airplane cockpit.
The pilot, the senior leader, controls implementation of the airplane’s
strategy (to land at the right airport at the right time and safely) by
monitoring a set of related gauges: heading, air speed, altitude, and
attitude. A pilot who monitors only one measure (air speed, or financials)
will not successfully implement the strategy. A pilot who fails to
understand the interrelationships (raising the plane’s attitude without
adjusting air speed) may cause the plane to stall and crash.
Now think in terms of an airplane simulator used to train pilots. We have
added the element of a changing environment. The pilot must constantly scan
the key gauges and make adjustments in response to changing weather
conditions. A pilot who adjusts one key measure (heading) without taking
other indicators into account (wind direction and air speed), may land at
the wrong airport and fail to achieve the strategic objective. Organizations
need a similar set of large, easily visible gauges to let them know whether
they are on track in implementing their strategy.
Five factors in this analogy are important to understanding the power of
a strategic measurement system using the Balanced Scorecard approach. First,
it forces senior leadership to agree on the details of the strategy because
they must be defined in a measurement language. Second, all elements of the
measurement plan (What airspeed? What heading?) are driven by this strategy.
This linkage of all measures to the strategy creates alignment; all parts of
the system are focused upon achieving the same result. Third, it is
understood that an adjustment to one indicator may have an impact on the
other indicators. Fourth, the measures are used to make decisions that
result in specific actions. And finally, if progress toward the goal is
lagging, the pilot (senior leader) can check two potential reasons: the
flight plan (strategy) was not accurately followed or environmental changes
made the flight plan (strategy) obsolete.
How then does one begin to implement a Balanced Scorecard? Following are
four steps from the approach outlined in Bullseye!. (Schiemann and Lingle,
Step 1. Leadership Team Develops a Strategy Map.
The Balanced Scorecard is not just about developing a more balanced set
of measures; it is about using measurement in a more effective way. So the
senior leadership must start by understanding and agreeing with the concept
of a measurement-managed organization.
Next, senior management articulates the strategy and their assumptions
regarding the key success factors of that strategy. Key success factors
include those areas in which the organization must excel in order to
successfully implement the strategy as well as major risk factors. The
output of this discussion is a strategy map, a pictorial representation of
the strategy with cause-and-effect relationships shown by arrows. A good
strategy map should have no more than 15-20 items to insure that
organizations do not become DRIPS: Data Rich but Information Poor. In most
organizations we have worked with, developing a strategy map with a senior
team who already have a strategic plan requires 2-3 full days, typically in
an off-site retreat.
Every organization’s strategy map will look different because each map is
driven by the organization’s unique strategy and key success factors. The
map identifies the key areas that must be measured a.) to track strategy
implementation and b.) to test strategic assumptions.
Step 2. Measurement Team Defines Measures and Sets Performance Targets.
In Step 2. a measurement team is formed to translate the strategy
map into concrete measures. In most organizations, this is a
cross-functional, multi-level team that is involved in five activities.
First, the measurement team must understand the thought process that went
into the strategy map. For example, why is the leadership team interested in
gross margin from new products instead of total sales? Why are they more
concerned with market share by segment than with the number of new
customers? What are the cause and effect relationships seen by the senior
Second, the measurement team evaluates the assumptions embodied in the
strategy map. Is there knowledge from lower levels in the organization that
would either refute any of the assumptions or add new elements? Any
disagreements between senior leadership and the measurement team need to be
worked out before moving forward. It is essential that both groups be fully
committed to the strategic assumptions and talk about them in a similar
Third, the team identifies actual metrics to be used to track each
element of the strategy map. Fourth, the measurement team makes
recommendations on performance targets for each measure, determining those
areas in which stretch goals seem appropriate. Finally, this balanced set of
metrics and goals are reviewed and approved by the senior leadership team.
Step 3. Cascade Measures Through the Organization.
Next, each level or department in the organization is asked to validate
the strategy map. Continually testing the assumptions of the strategy map at
each successive layer builds commitment to (not just knowledge of) the
Each group then selects those parts of the strategy map on which they
have an impact, and develops their own measures for those parts of the
strategy map. As measures are developed, it is important to keep an eye
toward the 80-20 rule. What are the few most important issues (and measures)
to impact? By linking each unit’s measures to the strategy map, it is
assured that they will be balanced and linked to the core strategy and its
key success factors. Reducing the number of measures to the critical few
helps keep the organization focused.
Step 4. Collect, Share, Analyze, and Act On the Data.
Once the measurement approach is designed, data is collected and used to
guide the organization and form the basis for decisions. Units use their own
data, and this data may also be rolled-up into higher-level indices that are
reviewed by senior leadership. All levels of the organization should review
their measures from two perspectives. First, what does tracking data
indicate about progress toward goals and strategy implementation? And
second, what does the relationship between changes in different measures
indicate about your strategic assumptions?
Understanding the relationships among different data streams lies at the
heart of strategic thinking. But, even beyond validating the strategy,
thinking about this begins to drive a culture change. It forces everyone in
the organization to think more about process flows and less about functional
areas. It spurs more “systems” (and strategic) thinking at every level and
results in greater teaming. Research has demonstrated that implementation of
a balanced scorecard creates a more committed workforce, and a more
team-oriented, process- focused, agile organization. (See Table 1.)
In summary, the Balanced Scorecard is a set of measures that are derived
from corporate strategy, used at all levels of the organization to align
employees’ activities with the strategy, and reviewed by senior management
to track strategy implementation at the same time that they test their
strategic assumptions. However, the real power of the Balanced Scorecard is
its impact on “the cultural fabrics of organizations and [their]
fundamental attitudes toward such things as what information should be
shared, how decisions should be made, what effective leadership involves,
and what types of behaviors get recognized and rewarded.” (Bullseye!, p.
Table 1. Comparison Between Measurement-Managed and non-Measurement
From John H. Lingle and William A. Schiemann, “Is Measurement Worth It?”,
Management Review, March 1996m 56-61
Clear agreement on
strategy among senior management
communication of strategy to organization
Open sharing of
High level of
teamwork among management
High levels of
self-monitoring of performance by employees
employees to take risks