Balanced Scorecard Strategy For Dummies E-Book

Charles Hannabarger

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 582

Veröffentlichungsjahr: 2011

Beschreibung

A practical, easy-to-understand guide to Balanced Scorecard for busy business leaders The Balanced Scorecard method is an analysis technique designed to translate an organization's mission and vision statement and overall business strategies into specific, quantifiable goals, and to monitor the organization's performance in achieving these goals. Much less technology driven then other analysis approaches, it analyzes an organization's overall performance in four regards: financial analysis, customer service, productivity and internal analysis, and employee growth and satisfaction. Balanced Scorecard Strategy For Dummies breaks down the basics of Balanced Scorecard in simple language with practical, Dummies-style guidance on getting it done. This book covers all the basics of Balanced Scorecard for busy executives and managers-and does it without the high price tag of most professional level Balanced Scorecard guides.

Leseprobe

Balanced Scorecard Strategy For Dummies®

by Chuck Hannabarger, Rick Buchman, and Peter Economy

Balanced Scorecard Strategy For Dummies®

Published byWiley Publishing, Inc.111 River St.Hoboken, NJ 07030-5774www.wiley.com

Copyright © 2007 by Wiley Publishing, Inc., Indianapolis, Indiana

Published simultaneously in Canada

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Library of Congress Control Number: 2007932466

ISBN: 978-0-470-13397-2

Manufactured in the United States of America

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About the Author

Chuck Hannabarger: Chuck (Tyler, Texas) is founder and president of PSI Associates, a business consulting and training firm founded in 1992 with headquarters in Tyler, Texas. As a business consultant, Chuck has consulted with many of the Fortune 100 companies and is recognized throughout the world for his work in the areas of Balanced Scorecards, Six Sigma, Lean Manufacturing, Business Process Reengineering and Project Management. Chuck’s course on Project Management has been offered at UC Berkeley, Pepperdine University, San Diego State University, and Michigan State University, to name a few. He received his BSBA and his MBA in technology management from the University of Phoenix. To schedule Chuck or one of his associates to discuss your business improvement needs, contact him at www.PSIAssociates.com or e-mail him at [email protected].

Rick Buchman: Rick,who lives in Woodland Hills, CA, has worked with many of the Fortune 100 companies for over 20 years, as both an organizational member of executive management, and as an external consultant, in designing, developing, and implementing operational excellence and continuous improvement programs worldwide. He received his bachelor’s degree in mathematics from Western Illinois University, his MBA in business from California Coast University in Santa Ana, CA, and has completed all but the dissertation for his PhD in management as well. Currently, Rick is working as a consultant with several major global clients toward designing and implementing their continuous improvement programs, focusing on lean leadership and improving the flow of value to deliver products and services to their customers worldwide. You can reach Rick at [email protected].

Peter Economy: Peter is Associate Editor for the award-winning magazine Leader to Leader, Senior Consultant for The Jana Matthews Group, a member of the National Advisory Council of the Creativity Connection of the Arts and Business Council of Americans for the Arts, and bestselling coauthor of The SAIC Solution: How We Built an $8 Billion Employee-Owned Technology Company, as well as Managing For Dummies,The Management Bible, Enterprising Nonprofits: A Toolkit for Social Entrepreneurs, Writing Children’s Books For Dummies, and many others. Peter invites you to visit him at his Web site: www.petereconomy.com.

Dedication

From Chuck: Dedicated to my father and mother, Don and Emma, who have always been in my corner, and to my wife Denise, our children and grandchildren, without whose support and understanding I wouldn’t have been able to write this book.

Authors’ Acknowledgments

We give our sincere thanks and appreciation to our publishing team at Wiley, including Joyce Pepple, Michael Lewis, Jennifer Connolly, and Darren Meiss, Josh Dials, and to our Technical Editor, Bill Lareau.

Chuck: Thanks to Rick and Peter for their friendship, steadfast support, and dedication to making this project happen.

Rick: Thanks to Mona, my mom, and my family, who helped me think through the many ideas, models and tools of the balanced scorecard, and who always cheered me on.

Peter: Thanks to Chuck and Rick for their diligent efforts throughout this project—no matter where in the world they happened to be at the time (and let me tell you, these guys get around!).

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Contents

Title

Introduction

About This Book

Conventions Used in This Book

What You’re Not to Read

Foolish Assumptions

How This Book Is Organized

Icons Used in This Book

Where to Go from Here

Part I : The ABC’s of Balanced Scorecard

Chapter 1: Goals, Scores, and the Balanced Scorecard

Getting Familiar with Balanced Scorecard

Achieving Organizational Balance

Analyzing Your Customers: Critical Leg

Following the Money: Foundation Leg

Tracking Your Internal Business Processes: Value-Creation Leg

Managing Company-wide Knowledge, Education, and Growth: Learning Leg

Using Dashboards to Apply Balanced Scorecards to Your Business

Chapter 2: Building and Balancing Scorecard Strategies

Understanding How the Four Legs Interact and Link to Strategies

Borrowing from Other Companies’ Success

Developing Your Strategy Map: A Balancing Act

Ensuring a Balanced Scorecard (And What to Do When Yours Isn’t)

Adapting to Changes in Your Markets or Business

Chapter 3: Planning For the Balanced Scorecard

Getting Your Planning in Order

Planning Your Work and Working Your Plan

Building the Foundation and the Structure of a Scorecard

Adding the Final Touches

Chapter 4: Putting Your Balanced Scorecard into Action

Deciding When to Launch Your Balanced Scorecard

Sustaining the Balanced Scorecard

Mastering the Art of Communicating Your Balanced Scorecards

Part II : The Customer — The Critical Leg

Chapter 5: Understanding Your Role with Customers

Five Things You Must Know about Customers

Using Customer Info to Keep Your Customers Happy

Linking Customer Measures to Your Strategies, Policies, and Plans

Following Up with Your Customers for Adjustments

Chapter 6: Creating a Customer Scorecard

Zeroing In on the Right Customer Measures

Getting Dependable Data

Avoiding Interpretation Pitfalls

Building the Customer Scorecard

Analyzing a Scorecard and Determining a Course of Action

Chapter 7: Building the Customer Leg Dashboard

Customer Dashboard Fundamentals

Building the Customer Dashboard

Tracking and Analyzing the Customer Dashboard

Part III : Financial Measurement — The Foundation Leg

Chapter 8: Understanding Your Role in Financial Measurement

Five Things You Must Know About Financial Measurement

Finding The Financial Data Gold Mines

Measuring and Interpreting with Accuracy

Turning Numbers into Information

Linking Financial Measurements To Strategies, Plans And Tactics

Chapter 9: Building the Financial Leg Scorecard

Key Aspects of Financial Measures

Financial Measures That Matter

Creating The Financial Scorecard

Interpreting Financial Measures for Balanced Scorecards

Understanding the Essence of Accuracy

Chapter 10: Building the Financial Leg Dashboard

The Basics of Financial Dashboards

Creating Financial Dashboards That Have Impact

Avoiding Pitfalls While Designing Dashboards

Understanding Your Financial Dashboard

Part IV : Internal Business Processes – The Value-Creation Leg

Chapter 11: Understanding Your Role in Internal Business Processes

Five Things You Must Know about Internal Business Processes

Creating Value

You Get What You Reward

Building-In Continuous Improvement

Pitfalls to Continuous Improvement

The Weakest Links in Internal Business Processes

Tying Internal Processes to Your Strategies, Plans, and Tactics

Chapter 12: Building the Internal Business Process Scorecard

Finding the Right Measures for Internal Business Processes

Building Scorecards for Internal Business Processes

Making Process Decisions That Give Competitive Advantage

Chapter 13: Building Dashboards for Internal Business Processes

Understanding Internal Business Process Dashboards

Creating Your Internal Business Process Dashboards

What Your Internal Business Process Dashboard is Telling You

Part V : Knowledge, Education, and Growth — The Learning Leg

Chapter 14: Understanding Your Role in Learning and Growth

Getting Schooled on Knowledge, Education, and Growth

Have a Clear Direction for the Future

Knowing and Understanding Liabilities

Inventorying Knowledge, Skills, and Abilities

Linking Your Strategies, Operations, and Tactics for Learning and Growth

Chapter 15: Creating the Knowledge, Education, and Growth Scorecard

Finding The Right Measures For Knowledge, Education And Growth

Constructing The Knowledge Management Growth Scorecard

Determining What Your Scorecard Is Telling You

Chapter 16: Creating The Knowledge, Education, and Growth Dashboard

Requirements For Knowledge, Education, and Growth Dashboards

Creating Dashboards That Increase Knowledge Management

Analyzing Your Knowledge, Education And Growth Dashboard

Understanding the Pitfalls of Analysis

Part VI : The Part of Tens

Chapter 17: Ten Tips for Balanced Scorecard Success

Establish (and Remember) Where Your Company is Headed

Understand and Stay Current with What Your Customers Want

Define Your Scorecard and Dashboard Roles and Responsibilities

Charter Effective Steering Committees

Establish and Maintain Accountability

Link Your Scorecards and Dashboards to Your Strategies, Goals, and Objectives

Communicate Your Personalized Four-Legs Approach to Everyone

Use Feedback and Feed-Forward Loops

Plan and Execute Your Balanced Scorecards Relentlessly

Synergize Your Scorecards for Competitive Advantage and New-Market Entrance

Chapter 18: Ten Biggest Scorecard Mistakes to Avoid

Cherry Picking

Following Case Studies Too Closely

Delegating Responsibility without Authority

Ignoring the Soft Stuff

Focusing Too Much on the Tools

Overanalyzing

Not Dealing with Key Detractors

Sending Mixed Messages

Exaggerating the Returns

Ignoring the Customer

Chapter 19: Ten Tips for Overcoming Barriers

Empower Your Employees

Be Flexible

Apply Psychology

Identify and Use Influential People

Limit the Use of Force

Don’t Shoot the Messenger; Make Everyone the Messenger

Implement Stage-Gate Reviews

Reward, Recognize, and Celebrate Success

Communicate, Communicate, Communicate (And Don’t Forget to Talk)

Provide Structure for Coaching, Mentoring, and Learning from Mistakes

: Further Reading

Introduction

There are many reasons for reading a book about implementing Balanced Scorecards in your business. Perhaps you’ve read or heard about Balanced Scorecards, and you want to know more about how they can improve your business processes and enhance the bottom line. Or maybe you have taken a new job and inherited a Balanced Scorecard system that isn’t working right — and that is taking far more time to maintain than it’s worth. Or you might have a highly tuned Balanced Scorecard system in place — complete with well-designed dashboards — but you would like to get some advice on how to fine-tune your Balanced Scorecards and continually improve them.

Balanced Scorecard Strategies For Dummies was written to respond to each of these needs — and many more. The book avoids the business fad-of-the-month approach common in many works of this type, instead focusing on tried-and-true solutions to the most common situations and problems that real business leaders face: solutions that will stand the test of time and be just as effective tomorrow — or a year or decade from now — as they are today.

Balanced scorecards have emerged as one of the most effective business tools available today. The bad news is that there is much confusion out there in the business world as to exactly what a Balanced Scorecard is, and how to design and implement ones that work. The good news is that this book solves these problems — and more.

We specifically designed this book to provide you with the very best and most up-to-date ideas, concepts, and tools for designing and implementing Balanced Scorecards — successfully, and with a minimum of muss or fuss. Apply them, and we are certain that you’ll be able to benefit from their significant promise — achieving the high level of business success that Balanced Scorecards can unlock in any organization.

About This Book

Balanced Scorecard Strategies For Dummies is full of useful information, tips, checklists, and figures for everyone who aspires to implement Balanced Scorecards and dashboards in businesses of any kind in any industry. If you work for an automobile or computer manufacturer, this book is for you. If your business delivers healthcare or software development services, this book is for you. If your business is large or small, old or new, product or service oriented, this book is for you. For a fraction of the cost of an hour’s time with a top-rank consultant, this book provides you with an easily understandable road map to today’s most innovative and effective Balanced Scorecard and dashboard techniques and strategies.

This book is perfect for all levels of managers and business professionals. New managers can easily find the basics that they’ll need to know to be successful, while more experienced managers will find higher-level material that can be used to make an existing Balanced Scorecard program even better. Despite the old saying about teaching old dogs new tricks, you can always make changes in your approach to doing business that will make it better and more effective.

Whether you’re new to the job or a seasoned pro, it’s our hope that you’ll learn something new that will help you improve your business — making you and your team more valuable in the process. Don’t worry about making an occasional mistake as you push for needed changes in your organization — we all make mistakes from time to time. The secret is to learn from mistakes and to avoid making them again. When you do make a mistake, simply pick yourself up, laugh it off, and learn from it. We wrote this book to make learning easier so you won’t have to learn the hard way.

Conventions Used in This Book

We use the following conventions throughout the text to make everything consistent and easy to understand:

All Web addresses appear in monofont.

New terms appear in italic and are closely followed by an easy-to-understand definition.

Bold text indicates keywords in bulleted lists or highlights the action parts of numbered steps.

When this book was printed, some Web addresses may have needed to break across two lines of text. If that happened, rest assured that we haven’t put in any extra characters (such as hyphens) to indicate the break. So, when using one of these Web addresses, just type in exactly what you see in this book, pretending as though the line break doesn’t exist.

What You’re Not to Read

We’ve written this book so that you can find information easily — and readily understand what you find. We also simplify it so you can identify “skippable” material, that is, text that you can come back to later when you’ve got some extra time on your hands (as if you had a lot of that!). Sidebars are the shaded boxes that appear here and there. They share fun facts, but nothing that’s essential to the success of your Balanced Scorecards. Enjoy them when you have the time!

Foolish Assumptions

We wrote this book with some thoughts about you in mind. For example, we assumed that you are a manager, executive, or other business leader who is motivated to discover some new approaches to improving your organization’s processes and enhancing its bottom line. We also assumed that you’re ready, willing, and able to committing yourself to making your organization more efficient and effective, and in helping others to do the same.

How This Book Is Organized

This book is divided into six parts — jump in wherever you want. The following sections explain what you’ll find where.

Part I: The ABC’s of Balanced Scorecard

The use of Balanced Scorecards has become more popular than ever for mea- suring the whats and hows of business, and for good reason — they work. This part provides a basic understanding of the four legs of Balanced Scorecards — the customer leg, the financial leg, the internal business processes leg, and the knowledge and growth leg — and provides you with the best ways to understand your needs and to make plans for implementing your own Balanced Scorecards.

Part II: The Customer — The Critical Leg

Every business needs customers to exist — without customers, after all, who would pay for the products you manufacture or the services you deliver? This part describes the customer leg in detail, including understanding your role with customers and measuring what they want and need. We describe how to build your customer scorecards and dashboards, how to understand what they tell you, and the pitfalls to avoid.

Part III: Financial Measurement — The Foundation Leg

The financial leg of the Balanced Scorecard is the cornerstone of any business, and it determines its health, performance, and long-term viability. This part addresses financial measurement and the use of metrics — along with management’s role in determining and implementing them. We describe how to develop and implement financial scorecards and dashboards, and point out a number of pitfalls that can derail even the best-laid of your Balanced Scorecard plans.

Part IV: Internal Business Processes — The Value Creation Leg

Believe it or not, your business’s internal processes can and do create value for your customers — or not, depending on how well they are designed and implemented. In this part, we address the role that Balanced Scorecards can play with internal business processes, and how you can use them to create value. We also address the pitfalls to avoid in this leg of the Balanced Scorecard.

Part V: Knowledge, Education, and Growth — the Learning Leg

While most organizations have a natural tendency to focus on financial performance, it is critical that they not ignore knowledge, education, and growth. In this part, we consider the manager’s roles and responsibilities in implementing this “learning leg” of the Balanced Scorecard, showing how scorecards and dashboards work together, as well as a variety of pitfalls to avoid.

Part VI: The Part of Tens

This part contains quick resources that provide information in an easy-to-digest fashion. Explore some tried-and-true tips for Balanced Scorecard success, mistakes to avoid, and ways to overcome barriers to your improvement efforts.

Icons Used in This Book

To make this book easier to read and simpler to use, we include some icons in the margins that can help you find and fathom key ideas and information.

These tidbits provide expert advice to help you save time, money, or frustration in the Balanced Scorecard process.

This icon highlights important information to store in your brain for quick recall at a later time.

Avoid mistakes by following the sage words of advice that appear by this icon.

Check out the true stories that accompany this icon so you can learn from the business experiences of others.

Where to Go from Here

The great thing about this book is that you decide where to start and what to read. It’s a reference you can jump into and out of at will.

If you’re new to the wonderful world of Balanced Scorecards, you may want to start at the beginning of the book and work your way through to the end. If you’re experienced pro, then you can look up any topic you like and find your way directly to it. Just head to the table of contents or the index to find the specific information you want. Whichever approach you take, you’ll find a wealth of information and practical advice. Simply turn the page and you’re on your way!

Part I

The ABC’s of Balanced Scorecard

In this chapter . . .

Balanced scorecards have become not only popular within companies both large and small, they have become essential to measuring and managing the what’s and how’s of business. Having a basic understanding of the four legs for balanced scorecards — the customer leg, the financial leg, the internal business processes leg, and the knowledge and growth leg — is the first step in establishing your balanced scorecard strategy for your organization. After we cover the basics, we consider the best approaches to understanding your needs and making plans for implementing your own balanced scorecards.

Chapter 1

Goals, Scores, and the Balanced Scorecard

In This Chapter

Defining Balanced Scorecard and the issues surrounding it

Forming the four legs of a Balanced Scorecard

Incorporating dashboards to get continuous feedback for success

An old saying goes something like this: If you’re not keeping score, you’re just practicing. If you ask us, truer words were never spoken — especially in today’s topsy-turvy business world. To make (and keep) your business a success, you need to not only keep score, but also predict your score in advance by setting goals and then achieving them on a consistent basis. And we’re not talking about easy-to-achieve goals and scores. No! We’re talking about goals that stretch your imagination and push your creativity and ingenuity to the limits — as well as the creativity and ingenuity of your employees.

Can you imagine what the people working at NASA in the 1960s thought when they were asked to build a rocket and space capsule that would transport Americans to the moon — in less than ten years? We can imagine them wondering exactly how in the heck they would pull it off, but never doubting that they would. NASA put a massive stretch goal before them, and they achieved it. Balanced Scorecard Strategy is the tool that will allow your company to set and achieve stretch goals.

In this chapter, we give you an initial peek at Balanced Scorecard, preview its four legs, and offer a glimpse of how you can ensure that your company’s scorecard stays balanced.

Getting Familiar with Balanced Scorecard

What’s a Balanced Scorecard? Glad you asked, because in this section you’ll get your first glimpse at what a Balanced Scorecard is and how it works. You’ll see that scorecards aren’t rocket science, but they do require some good business structure, analysis, and planning in order to get it right.

Just what is Balanced Scorecard, anyway?

To better understand what a Balanced Scorecard is, maybe you should first learn where it came from and why. The Balanced Scorecard was first developed in the early 1990s by two guys at the Harvard Business School: Robert Kaplan and David Norton. The key problem that Kaplan and Norton identified in today’s business was that many companies had the tendency to manage their businesses based solely upon financial measures. While that may have worked well in the past, the pace of business in today’s world requires better and more comprehensive measures. Though financial measures are necessary, they can only report what has happened in the past — where your business has been — and they are not able to report where it is headed: It’s like trying to drive your car by looking in the rear view mirror.

In order to provide a management system that was better at dealing with today’s pace of business and to provide business managers with the information they need so that they can make better decisions, Kaplan and Norton developed the Balanced Scorecard. Note that we said that the Balanced Scorecard is a management system — not a measurement system. Yes, measurement is a key aspect of the Balanced Scorecard, but it is much more than just measurement: it is a means to setting and achieving the strategic goals and objectives for your organization.

So, what is the Balanced Scorecard? In short, it’s a management system that enables your organization to set, track and achieve its key business strategies and objectives. Once the business strategies are developed, they are deployed and tracked through what we call the Four Legs of the Balanced Scorecard. These four legs are made up of four distinct business perspectives: The Customer Leg, the Financial Leg, the Internal Business Process Leg, and the Knowledge, Education, and Growth Leg.

Leaning on the four legs of the scorecard

Your Balanced Scorecard Strategy relies upon four different yet integrated perspectives: The Customer Leg, the Financial Leg, the Internal Business Process Leg, and the Knowledge, Education, and Growth Leg. These four legs of the Balanced Scorecard are necessary for today’s business executives and managers to be able to plan, implement and achieve their business strategies. The four legs will make the difference between whether your business succeeds or fails. The following list takes a closer look at the four legs:

Customer scorecard: Measures your customers’ satisfaction and their performance requirements — for your organization and what it delivers, whether it be products or services.

Financial scorecard: Tracks your financial requirements and performance.

Internal Business Process scorecard: Measures your critical-to- customer process requirements and measures.

Knowledge, Education, and Growth scorecard: Focuses on how you train and educate your employees, gain and capture your knowledge, and how you use it to maintain a competitive edge within your markets.

Achieving Organizational Balance

When reflecting on the many companies we’ve worked with (and we’ve worked with a lot!), we notice that many organizations tend to be unbalanced — that is, they focus only on two legs of the Balanced Scorecard: their financial measures (see Part III) and their internal business process performance (see Part IV). As a result, they miss the mark in measuring and tracking other critical parts of their businesses — things like their customers (see Part II) and their internal knowledge and growth (see Part V).

These four elements, or legs, have to be measured, analyzed, and improved together — continuously — in order for your business to thrive. If you ignore any one of these four legs, it will be like you’re sitting on a four-legged stool with a broken leg. You’ll eventually lose your balance and fall flat on your face. And, last time we checked, lying flat on your face is no way to run a business!

You not only have to measure these critical four legs, but also set strategies, goals, objectives, and tactics to make them happen. And while you’re at it, you have to make sure that your strategies and tactics are congruent. They have to work together and create a single thread, tying them together in ways that make sense. This isn’t an optional exercise; it’s essential. The future of your business depends on it.

Following a total balanced-scorecard approach gives your business the balance needed to ensure that these critical areas get the attention they deserve. Organizational balance isn’t all that difficult to understand, but achieving it . . . well, that’s a different story. (And we don’t have enough pages in this chapter to tell that particular story!) Balance takes effort and persistence and can be achieved in any business, in any country, at any time. The old saying “It won’t work in this place — we’re different from all those other guys out there” just doesn’t wash. If you think that way, your competition will thank you — all the way to the bank!

Analyzing Your Customers: Critical Leg

Each of the four legs have equal importance in your Balanced Scorecard (after all, if they didn’t have equal importance, they wouldn’t be balanced), but your customers are your reason for being, your raison d’etre. Without them, you’d have to close your business’s doors and go home to stare at the television all day long. Yet, as important as they are to you, customers often get lost in the swirl of the many everyday tasks you accomplish in your business. You may lose sight of who you do all this stuff for: your customers. Many companies don’t have a clue about what the customer really wants — including those who make the product, fulfill the service, and have the greatest impact upon the customer.

Ask yourself this question: “Does every person in my company know what our customers want and how their work affects the customers?” Go ahead, go out into your workplace and ask your employees this question. What answers do you get? Something generic, like “Yeah, um . . . we need to deliver quality, I guess.” Or something specific and measurable, like “I have to make sure that I get this part between 0.10 and 0.12 millimeters.” Do you see the difference? If not, your customers certainly do, as do your competitors.

You have to know what your customers want from you — what they demand in terms of quality, cost, and delivery – and you have to know what they will be wanting from you in the future. To do this, you first need to find out who your customers are — in and out of your organization — and who they will become. For more on analyzing your customers for this leg of the scorecard, see Chapter 5.

Knowing who you sell to

Identifying customers seems like a pretty basic task that all companies should have mastered, right? Here’s a news flash: Many don’t do it. Tracking sales and identifying existing markets aren’t very difficult duties, but many companies don’t continually track these elements. Situations change. Customers change. Markets change. And woe be unto those companies that miss those changes, for they’ll soon find themselves in a downward spiral to bankruptcy. They’ll wake up one day and wonder what happened.

In today’s globally competitive business environment, where the customer has a multitude of choices, it’s imperative that you know who your customers truly are. It doesn’t matter if you’re a senior executive, a middle manager, or on the front lines making products or delivering services. If you don’t know who your customers are, how can you ever satisfy them? (Hint: You can’t!) For more on how to identify your customers and how they fit into the scorecard, check out Chapters 5 and 6.

Cracking the whip on nearsighted business practices

Perhaps you’ve heard the lament about the poor old buggy whip manufacturers that operated around 100 years ago, when some character named Henry Ford was driving around Detroit, Michigan in his new fangled “automobile.” Ford ended up putting most of the buggy whip manufacturers out of business. Instead of remaining stuck in the past — hanging onto old products and old markets — those buggy whip manufacturers should’ve looked toward the future and stayed focused on their real expertise: making things out of leather. Had they followed that path, they may have redirected their production into leather seats and padding for Ford’s automobiles. Long story short, the whip manufacturers may have not only survived, but also thrived in the new era. Unfortu- nately, they insisted on making buggy whips — a going-out-of-business plan in a fast-changing market.

Focusing on future customers

While taking a look at your existing customer base (see the previous section), you also need to be keeping your eyes on the future. Ask the following questions pertaining to your business and industry:

Where are your markets heading?

What new trends are emerging in your industry?

What’s the state of technology, and how will it impact your customers and your business?

Can you identify ways to leverage what you currently do and move into other markets to get additional customers?

The bottom line: You need to look at what your company really does and don’t limit yourself to a particular market, industry, or customer base. Look outside your sandbox, understand what’s at the core of your business, and look for other markets and customers to sell to. To take a look into your company’s crystal ball, head to Chapter 6.

Considering your internal customers

You have more customers out there than you may think, and you need to identify and account for them all. For instance, executives often don’t realize that they have customers within their own companies. As an executive, mid-level manager, or front-line supervisor, each employee who reports to you is your customer. Now there’s a shift in thinking, huh? Your job is to provide your employees with the tools they need to satisfy their internal and external customers. Specifically, they need knowledge, skills, authority, equipment, budget, and so on — tools that allow them to do their jobs right the first time.

Your employees have internal customers, too. Your business operations often are a combination of processes, requiring many different operations and people to get work done. If an employee does his job and hands off his work to another employee so that she can do her job, isn’t she his internal customer? Shouldn’t their company measure what the internal customer wants and needs and how well the internal supplier satisfies them? Shouldn’t the first employee know what his internal customer wants from him so that they can do their jobs with the least amount of hassle? Shouldn’t the work provided to fellow employees be fit for use, just like you want your products to be fit for the end users — the people who pay for what you do and pay your bills? The answer to all these questions is a resounding “Yes!”

A key part of the Balanced Scorecard Strategy is getting in touch with all your customers, including those within your company. Know what your customers need so that you can keep the end users satisfied and motivate them to buy your products and services time after time.

Following the Money: Foundation Leg

Businesspeople track their money like their lives depend on it . . . and they do. Managing the money is foundational to any successful business. Knowing where you get your money from — how much you bring in — and where you plan to invest it, is essential. The problem with many companies is that they focus too much on the financial leg and not enough, if at all, on the other three legs of the Balanced Scorecard.

When you start to look at your financial leg, it’s always best to start at the strategic level. Here are some questions you can ask of your business at the strategic level. These questions will help you to focus on your long term financial goals and objectives for your organization and will allow you to set the operational and tactical measures for your Balanced Scorecard Strategy:

What are your financial strategies?

Do you plan to invest and grow your business? If so, in what products/services and in what markets?

Are you in the more mature stages of your products/services lives? Are you milking them for all the cash they can deliver?

Are your products/services in decline, causing you to sweat the future because you don’t know what’s next on the horizon and you’re wondering if you’ll still be in business this time next year?

These are basic financial questions in the business world, and you better know the answers to them. The financial leg of the scorecard will give you the help you need to track the right financial measures. For more on the financial leg of the scorecard, head to Part III.

For some reason, many businesspeople consider financial workers to be a necessary evil. They’d like to keep these number crunchers in a closet with a sign on the door that says “Enter only in case of extreme emergency.” Don’t hesitate to open lines of communication with your financial people. If you want a head start on this leg of the scorecard, learn their language and find out what gets them excited. For example, figure out how to translate your need to invest in new equipment into their language — like discussing improved cash flow and return on investment. You’ll find that financial advisors are real easy to talk to.

Measuring your financial health

Market shares, costs of goods sold, financial ratios — such as the price-to-earnings (or PE) ratio — cash flows, return on investment and assets, internal rates of return — it’s enough to boggle the mind (or at least give it a good workout)! These are just a few of the common measures that can show up in financial scorecards. An operational manager must understand them all and know how they affect business.

Your senior executives and financial people decide what financial measures your company chooses to focus on. The required measures differ from company to company. Heck, they can even differ between different organizations within a company. Regardless of the measures that you use, you need to understand how to measure your financial health and tie it to your Balanced Scorecard strategies, plans, and tactics.

When you cut through all the different measures, though, you’re left with some pretty basic stuff:

Earnings

Profits

Cash flow

All the possible financial measures can be tied back in some way to these three simple measures. How you account for them is up to your bean counters and accountants. Maximizing them is your job. Do you want to grow your company’s revenues? Sure you do. But how can you do it? That usually relies upon increased sales and market share — selling to new customers and forging boldly into new markets. What you do in your business depends on where you want to be 5, 10, 20 years from now and the expected market conditions when you get there.

Working in isolation: Departmental benefit and company downfall

A material control manager for a company that builds airframes was losing around $60,000 every month in rivets (the things that hold the aircraft together) because employees would drop them and they’d fall to the floor. After they hit the floor, the rivets couldn’t be used until they were swept up and gathered and sent to an inspection area, where people would inspect and bag them to be put back into the system for use. The manager wanted to get a handle on this system, but the approach he took wasn’t optimal.

The company stocked and distributed the rivets by providing bins throughout the plant so that workers could get them without going very far. They could walk a few feet to the rivet bins, grab a bunch, and quickly go back to work. When you consider that there were over a million rivets per airframe, this system made a lot of sense. So, what did the material control manager do? He set up a system that got rid of all the rivet supply locations by creating two rivet locations that limited the number of rivets any one worker could obtain at one time.

With the new system, the workers had to walk miles every day to get their rivets. Along the way, they took coffee breaks and spoke with friends they ran into. They wasted time in huge amounts, but the company labeled the material control manager a hero because losses went down significantly. But what about the costs to the other operations? Assembly and manufacturing costs went through the roof because the proper amount of work wasn’t getting done. The system put schedules in jeopardy, and the end result was millions of dollars in losses — all so the material control manager could control his department’s costs. By any measure, the material control manager made a bad decision and hurt his company and its customers more than he helped.

Don’t Lean too heavily on customers

A company in India was shipping kits to a major customer. In order to appear responsive, the company would ship kits immediately to the customer whenever they became available. The company wanted to score high on customer-satisfaction and process-shipping-performance indicators. Some of the kits had several dozen parts or assemblies, so the department transported partial kits whenever it could, sometimes several times a day. This system continued for some time, even though the company noticed rising costs, because the managers thought they were supporting the customer’s needs. In fact, the system was causing major havoc — not only with the company’s shipping process, but also with the customer’s receiving process. The customer had to rent out additional space just to manage the partial kits and all the parts and sub-assemblies that it received but couldn’t put into final assembly.

A Lean workshop identified the problem and determined that the company should just ship complete kits. The company used a Kanban (called a pull system, based on customer demand) rather than a push approach to the customer. The customer could now apply the kits to its final process immediately when needed.

Common mistakes made in finance

One of the most common mistakes in the business world is that leaders focus too much on short-term returns on investment and on quick fixes. The drive to maximize shareholder value and acquire quick, easy money makes for some interesting decisions for sure. And when we say interesting, we mean destructive. These decisions tend to foster short-term thinking and dissuade companies from making long-term investments that would improve the health of the companies. Improvements in equipment, people, and processes are ignored.

At the operational and tactical levels, the most common mistake is managers focusing on their own performance metrics without wondering whether achieving operational goals could hurt the overall performance of the organization. We call this mistake sub-optimization. One reason for this behavior is the desire to pit business units against each other to “motivate everyone to improve performance.”

You need to be mindful of the impact that achieving individual goals has on the overall goals of your company. For instance, always ask how goals link directly to the goals of the business, measuring profitability, on-time delivery, and quality of the products and services you deliver to the customer.

On a related note, here’s another common operational mistake: Depending on a department manager to make decisions instead of requiring the input of all the key department or functional managers. In some companies, the operations manager will decide to ship or not to ship based on operational goals, neglecting factors such as quality, expediting costs, or customer capability to handle the product.

Tracking Your Internal Business Processes: Value-Creation Leg

Many companies track some of their internal business processes, but they often ignore many of the things they should be measuring and tracking — especially all the non-core processes within their businesses (those things that you have to do in your business that don’t add value to your product or service): paperwork, databases, purchasing, quality departments, warehousing, distribution, and even management. The support processes just seem to keep doing what they do, with no one really paying attention to how well they function. In many cases, business processes are ripe for improvement and can offer up some tremendous returns when companies start digging into them.

That’s what the internal business process leg of the Balanced Scorecard is for. In the following sections, we take a look at how your internal business process create value and how you can install effective measures to monitor and improve your processes. We will also discuss the need for looking into the future and anticipating change and the top five problems that managers have in tracking their processes.

Assessing the current state of your business

In order to reap the benefits of process improvement, you first have to know where your company is right now. You have to assess your current performance so that you can determine where problems lie and what you must deal with now. You should measure the time it takes to get things done and how your quality levels compare to what your customers demand.

And for many businesses that look inward, what they find is poor quality. Poor quality costs money — often big piles of money. Studies show that poor quality often costs companies more than 25 to 30 percent of their revenues. How- ever, you can recoup much of that revenue by paying attention to where the losses are generated and fixing the problems. Specifically, you can examine your internal costs, external costs, appraisal costs — the list goes on and on.

If you improve your quality, through methods such as Six Sigma or Lean Manufacturing, you’ll reduce your costs and the time it takes to move products through your operations and to get them to the customers. After realizing that much of your processing doesn’t do anything but cost you time and money, you can focus on the things that create value to the customer. You can develop and deliver systems and processes that provide maximum value to the customer, with high levels of quality, while maximizing your profit margins and increasing your customer base.

For much more on quality improvement, check out Quality Control For Dummies, by Larry Webber and Michael Wallace (Wiley).

Installing effective measures for tracking processes

When it comes to tracking your processes, you need to install some effective measures so that you’ll know how you’re doing in two key areas: time and quality. You need to measure time because time is money – the longer it takes you to deliver your goods and services to your customers, the greater the costs. You need to measure quality because if you don’t, your business won’t be along for very long. Every business has some measures of quality, but many of the measures commonly used are too late in the game to be of any help in getting to the meat of cost reduction and quality improvement: they tend to be reactive, rather than proactive. When you get down to the nitty-gritty of your business at the tactical levels scorecards, you want to get to the measures that allow you to be proactive..

Some common measures of time that most businesses use are as follows:

Lead times: The amount of time between the placing of an order and the receipt of the goods ordered by the customer .

Cycle times: The total time from the beginning to the end of your production/service process, as defined by you and your customers. Cycle time includes process time, during which you work on a unit to bring it closer to an output, and delay time, during which a unit of work must sit idle until you’re ready to take the next action. In a nutshell, cycle time is the total elapsed time it takes you to move a unit of work from the beginning to the end of a physical process.

TAKT time: “Takt” is a German word for an orchestra conductors baton. Takt Time refers to the rate — or beat — at which your processes must be able to operate at in order to meet customer demands for your products or services: It’s the output requirement from your processes to meet your customer demand.

Some common measures for quality used by most businesses are as follows:

Defects per unit produced (a preferred measure to use because, unlike tracking defective units which may have multiple defects for any defective unit, defects per unit tracks the individual defects by type, thus allowing for better analysis and improvement)

How many defective parts per million

Defects per million opportunities

Scrap and rework costs

Warranty and sales returns

You’ll undoubtedly have several of your own measures as well, depending on your business, your industry, and the customers you serve.

Anticipating your business’s future state

Knowing the current state of your business is only part of tracking your business processes; you also have to look at where your customers, markets, and industry are headed. What’s happening on the technology front? Which of your suppliers’ actions may have an impact on your business in the future? Understanding the impact of the future is the job of any business executive, manager, or supervisor, so you have to stay plugged into the available information sources. Here are some sources that provide glimpses of the future:

Business journals and magazines

Industry journals

Seminars and workshops

Conventions and trade shows

The key to anticipating your future is fully understanding where you are today and what’s going on around you (see the previous sections). You have to continually move your focus from the horizon to the microscopic details of your business and back to the horizon again. While you’re at it, keep your eyes and ears open for any new technological developments coming down the road. Sometimes, breakthrough technologies will travel far above the posted speed limit; if you’re not careful, they may run you right off the road.

The top five process-tracking problems

After looking at the problems that can and will occur while you’re tracking your process performance (remember, if something can go wrong, it will), we’ve identified five that tend to be the most predominant. No matter where we go in the world for business, we run into these measuring issues:

1.Not involving the process workers in the measurement of their processes and work. You shouldn’t rely solely on automated data- gathering systems, staff, and quality departments to own and measure process data.

2.Not analyzing the process data for statistical control. You should use simple process performance-analysis tools, such as line/bar charts and control charts.

3.Having micro-process tunnel vision. Don’t focus solely on the microscopic details of the processes; look also at the overall systems and how the processes work together within those systems. Very often, changes made in processes to improve their performance can actually hurt the performance of the business as a whole. You have to make the right process improvements for the sake of the business, not the sake of the individual processes.

4.Getting the wrong data. A big problem is measuring the wrong processes, such as those that don’t relate to customer needs and wants. A good example of this is a company who spent a ot of time and money to measure and improve the finish on the product they sold to another company. Unknown to the supplier was the fact that the first thing the customer did with the product was that they roughed up the finish on the part so that they could use it in the assembly of their products.

5.Not getting real-time data. You need to measure often enough to get real-time information on your process performance.

If you eliminate these five key problem areas in tracking your process data, you’ll put your company ahead of many others in the world that don’t get it right. Congratulations! You’ve made a giant step forward.

Managing Company-wide Knowledge, Education, and Growth: Learning Leg

Managing your knowledge, education and growth is a vital, yet often ignored, aspect of any business. We’ve all hear the stories of organizations that were severely hurt by the retirement or attrition of a key individual that had tons of knowledge about the business and – oops - that knowledge went out the door with them. It has become such a critical issue that whole new systems designed solely for the purpose of knowledge management have been created.

Unfortunately, many companies just don’t do a good job — or any job at all, for that matter — of managing the knowledge, education, and growth of their business. This is, without a doubt, the most neglected and ignored leg of the Balanced Scorecard. And companies wonder why they have an employee-turnover rate of 300 percent or more along with massive quality and cost issues! They are amazed when a competitor introduces a new feature or technology. In these organizations, it always seems that the employees are to blame in the eyes of management. In fact, nothing could be further from the truth.

The ones to blame for being blind-sided by the competition, the high turnover, poor quality, and cost issues are the managers who hire and lead their people. They’re responsible for training the employees and making sure they have the necessary tools to do their jobs right. They are the ones responsible for keeping their eyes and ears open fo new developments in their industries and markets. The time has come to take a look into the mirror. If your organization is having troubles because your people don’t seem to know what to do, when to do it, and how to do it, or you always seem to be behind the eight-ball when it comes to your competition, it’s a pretty good indication that you haven’t been paying close attention to this leg of the Balanced Scorecard. By paying attention to this leg of your Balanced Scorecard Strategy, you will prevent these issues from occurring in the first place – and that’s why you use the Balanced Scorecard!.

In the following sections, we cover the importance of taking care of your employees’ and their development, measurement for your knowledge, education and growth scorecards, and keeping this leg of your Balanced Scorecard on track.

Understanding the importance of taking care of your own

You need your employees not only for the work they do in your business, but also for their ideas and creativity. For your company to be successful, your workers need to be highly trained and skilled in the following areas:

In the tasks they perform

In measuring their processes

In communicating

In team-based problem solving

In getting along with others

Plenty of competitors have this truth already figured out — that you must take care of your own to be successful — and they’re ready to use this knowledge to their advantage.

For all the talk you hear about how companies value their employees, we still deal with many companies that ignore the development of their workers. It all starts in the very beginning, when they hire new employees. Many people get jobs because managers like them, not because they have the necessary skills for the jobs. On the other hand, a new hire may have the necessary skills, but he or she doesn’t quite fit in with the culture of the organization. For many reasons, companies try to hammer round pegs into square holes. The result? A lot of headaches for everyone involved.

Allow us to be honest here: The days of workers leaving their brains at the door and just doing the work as management instructs are long over. And thank goodness for that! Can you afford to ignore this vital leg of the Balanced Scorecard? We don’t think you can. But what do you think?

Measuring knowledge, education, and growth

Measuring the knowledge, education, and growth in your company is very different from the measures of the other three legs of the Balanced Scorecard. With the other legs, you focus on achieving excellence in performance. With this leg, though, you focus on excellence in capability, in terms of where you’re going and how you’ll get there.

To measure the knowledge, education, and growth aspect of your Balanced Scorecard, you need to follow these steps:

1.Evaluate the core competencies your organization relies on to provide your products and services.

2.Examine your workforce to see what you have currently with respect to these core competencies. What are your strengths, and where do you need to increase competency and capability?

3.Determine where you have gaps between Steps 1 and 2. When you understand what you need, you can compare the needs to your employees’ current job skills and knowledge — skills and knowledge that you need not only to get work done, but also for your company’s future capabilities.

4.Choose an appropriate strategy to close the gaps. You can count on one of the following:

• Employee development (training, for example)

• Talent and capability acquisition (buy a company with the specific competence you need)

• Recruiting (hire subject-matter experts)

5.Plan and execute your strategy. Make sure you adjust accordingly along the way, because your work here ties into the other three legs of the Balanced Scorecard.

Appropriate, accurate, and timely measurement here makes the difference between whether your organization leads or follows in a market. For instance, we have seen recently where two hotels competed in a highly tourist-based market. The one hotel chain focused on fundamental services, and trained its workforce on precision, courtesy, and the rules of the hotel. The other, while still focusing on courtesy, trained its workforce on what is going on around the city, where to go for good food, entertainment, shopping or sightseeing. The second hotel chain had done a bit of market analysis, and determined most of the clients were from out of town, and wanted to get out and see the town. So, while the first hotel excelled in service and room amenities, the second hotel surpassed the first by a rate of two to one in their fill rates, because their employees were well versed in finding out what the client really wanted, and then helping the client get it.

It also determines how you measure progress and how fast you can detect and correct for any deviations from the expected scorecard performance objectives. Be sure you examine the following areas of your company:

A good place to start is to look at what your company makes — the products and services it provides. To whom do you provide? In what markets? To what degree? Owning 85 percent of a market requires a different approach — perhaps expansion to other markets — than if you own only 5 percent (in which case you may look to expand your market share). Also, understanding the types of products you provide in your markets can suggest other applications, expansions, and opportunities.

You need to know the geography of your market share. For example, you may own 15 percent of the global market, which may consist of 90 percent of the Central European market for your product. In this case, you need to think about how your group will need to approach the other 85 percent in ways that are different, given the different geographic and cultural aspects of these prospective clients.

Some companies design and use a simple matrix with employee names in the vertical column (Y-axis) and required job skills in the horizontal row (X-axis). They populate the matrix so that they can determine basic worker capabilities and the work their employees can perform, as well as gaps that need additional knowledge, skills, and capabilities — acquired through planning and executing employee development plans.

Staying on the right course in the fourth leg of the scorecard

Due to the pace of business (fast — very fast), you need a plan for measuring growth, education, and knowledge, and you need to monitor your progress against it. To stay on the right course takes effort and constant vigilance. As employees come and go due to internal transition, promotions, and attrition, the front-line managers must have the tools necessary to assess and develop employees. The real nuts and bolts of this leg of the scorecard are in the hands of the immediate supervision, whether they be process workers, supervisors, or managers.