Balanced Scorecard Strategy For Dummies®

 

by Chuck Hannabarger, Rick Buchman, and Peter Economy

 

 

 

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 Charles.Hannabarger@psiassociates.com.

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 creative_edge00@yahoo.com.

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!).

 

Publisher’s Acknowledgments

We’re proud of this book; please send us your comments through our Dummies online registration form located at www.dummies.com/register/.

Some of the people who helped bring this book to market include the following:

Acquisitions, Editorial, and Media Development

Project Editor: Jennifer Connolly

Acquisitions Editor: Mike Lewis

Copy Editor: Josh Dials

Technical Editor: Bill Lareau

Editorial Manager: Michelle Hacker

Editorial Supervisor: Carmen Krikorian

Editorial Assistants: Erin Calligan Mooney, Joe Niesen, Leeann Harney, and David Lutton

Cartoons: Rich Tennant (www.the5thwave.com)

Composition Services

Project Coordinator: Patrick Redmond

Layout and Graphics: Carl Byers, Brooke Graczyk, Joyce Haughey, Stephanie D. Jumper, Laura Pence

Anniversary Logo Design: Richard Pacifico

Proofreaders: Aptara, John Greenough, Jessica Kramer

Indexer: Aptara

Publishing and Editorial for Consumer Dummies

Diane Graves Steele, Vice President and Publisher, Consumer Dummies

Joyce Pepple, Acquisitions Director, Consumer Dummies

Kristin A. Cocks, Product Development Director, Consumer Dummies

Michael Spring, Vice President and Publisher, Travel

Kelly Regan, Editorial Director, Travel

Publishing for Technology Dummies

Andy Cummings, Vice President and Publisher, Dummies Technology/General User

Composition Services

Gerry Fahey, Vice President of Production Services

Debbie Stailey, Director of Composition Services

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:

bullet All Web addresses appear in monofont.

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

bullet 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.

Tip

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

Remember

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

Warning(bomb)

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

TrueStory(Property)

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.