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By Douglas Kent and Kathleen Geraghty
Share the Wealth
Extend your Balanced Scorecard Across the Supply Chain
There is more than enough evidence that Balanced
Scorecard delivers the results it promised. In fact, there is even
a Balanced Scorecard Hall of Fame, which includes some of
the world’s leading companies, highlighting the best
practices they have used to create a sound performance management
philosophy through the use of the Balanced Scorecard (BSC).
This distinguished membership list includes names like Mobil,
AT&T, Cigna, Siemens, Wells Fargo, and UPS.
Companies worldwide continue to adopt the BSC approach because
it is indeed one of the few methodologies that is not only
sound from a theoretical perspective, but meets the criteria
of practitioners – it delivers results. The hard work
designing and implementing scorecards is typically repaid
in financial performance, customer satisfaction, operational
efficiency and employee growth. These rewards correspond
directly with the perspectives a company commits itself to
in implementing the BSC.
So where did it all start and where is it heading?
The roots of the BSC run deep. In 1993, Robert S. Kaplan
of the Harvard School of Business and consultant David
Norton developed the Balanced Scorecard, an evolution of
the concepts included in the Tableau de Bord, which emerged
in France at the turn of the 20th century.
The Balanced Scorecard is an approach to performance measurement
that combines traditional financial measures with non-financial
measures. This approach provides managers with richer and
more relevant information about the activities they are managing,
increasing the likelihood of organizational objectives being
achieved.
Kaplan and Norton defined the BSC as a multi-dimensional
framework for describing, implementing and managing strategy
at all levels of an enterprise by linking objectives, initiatives
and measures to an organization's strategy. The scorecard
provides an enterprise view of an organization's overall
performance by integrating financial measures with other
key performance indicators around customer perspectives and
internal business processes, and around organizational growth,
learning and innovation. The BSC is not a static list of
measures, but rather a framework for implementing and aligning
complex programs of change, and indeed, for managing strategy-focused
organizations. As BSC co-author, David Norton described in
his Balanced Scorecard Report article (Jan-Feb 2002), “A
recent review of our Balanced Scorecard Hall of Fame organizations
revealed some striking commonalities. Every one of them happened
to be introducing a new strategy at the time they were introducing
the Balanced Scorecard.” In summary, a scorecard is
to be used to facilitate the translation of strategy into
action.
How far can Balanced Scorecard be extended? As the methodology
gained momentum, the good work went global. Support came
from every direction as demonstrated by companies like Ericsson,
Ricoh and Xerox. Success in single sites inspired many to
adopt BSC globally in part because the initiative begins
to address fundamental issues like understanding and applying
corporate strategy. Relating high-level statements to basic
business issues in their respective countries and finding
a common language to communicate across the organization
was an added incentive for global pioneers. BSC has also
found a home in government and not-for-profit organizations.
So where does it go next? Well that might just be up to you.
The potential of a Multi-Enterprise approach
While many companies are now recognizing the value of employing
a BSC within their own organization, it is now important
to consider the potential of utilizing the BSC approach across
multiple companies: a Multi-enterprise approach. BSC can
be extended to enable the performance of a collection of
constituents in a value chain.
Will this multi-enterprise BSC approach help to demonstrate
the effectiveness and efficiency of enterprise partners?
We think, yes! Albeit, the current examples of such are rare,
the building blocks are certainly there. Perhaps the best
application of a multi-enterprise BSC approach might be across
the supply chain, as this is typically viewed as extending
from suppliers’ supplier to customers’ customer.
Figure 2: SCOR Model Overview
click on image for larger view
If your ability to compete is contingent on the strength
of your supply chain (which is the case for most companies
irrespective of industry), there is no better place to
take this winning methodology. Consider the possibilities.
What if every member of your supply chain could agree on
common targets linked to a common strategy and used the
results achieved to drive change back through the key supply
chain participants?
We already know that identifying, capturing and communicating
measures across a single enterprise and linking these back
to the company strategy is not a trivial task. Managers must
be able to regularly measure the performance of their individual
businesses. Clearly this is far more complex across a multi-enterprise
supply chain and may not be feasible unilaterally with all
of your partners. The first step requires careful selection
of long term and strategically critical partners. So, what
is required to make this initiative successful? We offer
five key considerations to complete the puzzle:
Common Language
Company specific measurement jargon can sound as foreign
to your business partner as a far away language. Standards
are often the common denominator required here. For instance,
if a Multi-enterprise BSC is being used to measure supply
chain performance –consider the use of the Supply
Chain Operations Reference (SCOR) model – the de-facto,
industry-agnostic, common language for the process modelling
and measures used for the supply chain. Adopting a common
language like SCOR will eliminate the “lost in translation” syndrome.
Rationalized Measures
To manage business performance effectively, a company must
recognize which measures are unique to certain functions
and which are common across groups, departments, business
units and the supply chain. The goal is to find a limited
number of straightforward measures for the supply chain
that are tied to the common strategy. If the Supply Chain
must compete on certain performance attributes - select
attributes which are the most important for beating the
competition. Carrying out cause and effect exercises should
help identify the most meaningful measures. Again, SCOR
might assist in this instance by examining the Performance
Attributes which the supply chain is attempting to achieve
and the Level 1 Metrics that are tied to that particular
attribute.
Figure 3: SCOR level 1 metrics
click on image for larger view
Supply Chain Targets
This is not much different than the work that many companies
regularly take on under the heading of business reviews.
The partners you have selected for this initiative would
have given up on one-sided targets years ago and might
be practicing gain sharing up and down their supply chains
today. These targets should strive for balance in both
the effort and benefit for all parties. Without common
multi-enterprise target values, the utility of a BSC
is massively reduced.
One way to assist in setting targets is to perform benchmarking
only this time – you must benchmark on the full multi-enterprise
supply chain and not simply organization to organization.
It is often the effectiveness of the collaboration of the
supply chain constituents which offers the greatest reward.
We can compare this scenario to individual departments within
an organization selecting measures and setting targets with
little regard to other departments upon which they rely or
rely upon them. The effect may be improvement towards a target – optimizing
within the department. But, in the end these efforts may
deliver enterprise-wide - a worse result. This potential
myopic view applies and expands as we consider the multi-enterprise
BSC. Take caution to set the right targets giving full consideration
to other organizations up-stream and down-stream.
Data Management
In any performance management situation, data plays a critical
part. During the 2001 IDC/Balanced Scorecard Collaborative
Survey, “Complex data sourcing remained the single
biggest challenge to automating the Balanced Scorecard
(32% of respondents). In a multi-enterprise BSC, gaining
access to this data is fundamental. BSC tools which are
web-enabled and have import/export capability will help
cross the chasm. The same tool resolves the corresponding
data challenge, presenting information in a way that maximizes
an understanding of the individual businesses as well as
the supply chain. Such BSC tools will also aid in the issue
of communicating with clarity to internal and external
audiences.
Transparency
Effective enterprise-wide BSCs must allow for the participants
to effortlessly move from big-picture analyses to organization-level
details to facilitate proactive decision-making. Multi-enterprise
BSC gains must optimize performance at every level of the
enterprise. The enterprise will accomplish better decision
making through consistent and visual business performance
management. In order to manage the complexities involved
- a high-performance, web-enabled software enabler may
need to be considered. Collaboration software vendor, QPR
suggests that a tool must empower collaborative management
within and across organizations and should combine Performance
and Process Management in order to overcome some of the
more typical barriers.
click on image for larger view
In summary, building on the successful
deployment of the BSC for a single-enterprise gives us
the foundation to extend
this methodology across supply chains for a multi-enterprise
application. Sharing the wealth is an investment in your
future. Keeping the above five considerations in mind should
help ensure your success. And remember the words of Kaplan
and Norton:
"If you can’t measure it, you can’t
manage it."
About the authors
Douglas Kent, Director and CEO for eKNOWtion, provides clients
a unique combination of advice from his 20+ years as a practitioner,
consultant and educator. A frequent author and lecturer,
Douglas also teaches Operations, Logistics and Supply Chain
Management at the International University of Monaco and
is a Certified SCOR trainer. Contact at Douglas@eKNOWtion.com
Kathleen Geraghty, Director and COO for eKNOWtion, draws
from more than fifteen years of global supply chain experience.
Kathleen is currently consulting with Fortune 1000 companies
bringing practical performance management and BSC experience
to client applications. Contact at Kathleen@eKNOWtion.com
For more information on eKNOWtion and its services, visit
www.eKNOWtion.com
©2004
ChainLink Research, Inc.
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