European Process Organization

As Scandinavian Bottlers (as we shall call this organization for the purpose of this case study) was being set up in the late 1990s as a regional bottler for a major soft drinks corporation, the new management team decided to use the Balanced Scorecard as its core strategic management tool. According to the Balanced Scorecard Manager, the senior team grabbed hold of the concept because they perceived it as a powerful mechanism for establishing alignment of Scandinavian Bottlers’ vision, goals and strategic initiatives. “It was seen as an excellent way to operationalize the strategy, providing a focus for the organization that clearly mapped the cause and effect relationships within the leading and lagging indicators of our four scorecard perspectives, and from that onto the initiatives required for continuous improvement.”

Creating the Balanced Scorecard System

Scandinavian Bottlers Strategy Map and Balanced Scorecard were created in the months leading up to the launch of the originally 750 employee-strong organization.

The key input to the scorecard system design were the annual business plans (ABPs) that were formulated by the functional heads within the then developing Scandinavian Bottlers. Each departmental ABP comprised:

- An aspiration (we will be)
- A destination (goal)
- A view of the current reality (internal capability, customers, competitors and suppliers)
- Strategic initiatives

Senior Management Workshop

Following the ABP creation, a two-day workshop for the leadership team (functional heads and the CEO) took place, with the objectives to:

- Review and agree on the functional ABPs
- Develop objectives, measures and action plans and structure according to a Strategy Map and Balanced Scorecard

At the end of an intensive two-days of debate and refinement, the Scandinavian Bottlers’ Strategy Map and Balanced Scorecard were created and agreed. On day one of going live, the scorecard system was launched into the fledgling organization. “The workshop process enables us to move from a functional silo approach to a holistic approach for looking at the strategic framework,” recalls the Balanced Scorecard Manager. “It forced the management team to identify and prioritize the most important strategic initiatives, and the alignment of

ABPs across the functions.”

Within the model, the management team created revenue growth and productivity strategic initiatives and identified measures and three-year targets for the initiatives within each perspective.

Scorecard Devolution

“Energized by the success of the workshop, the senior management team led the process of devolving the scorecard enterprise-wide.” Says the Balanced Scorecard Manager.

Mistakes in Creating the Scorecard System

However, despite the management team doing much right in its creation (such as leadership from the CEO, consensus from the wider senior management team, positioning the scorecard as the core management system directing all other managerial processes), the Balanced Scorecard system proved a major disappointment. Put simply, in the hurly-burly of everyday operations, managers and staff alike soon perceived the scorecard as more of a hindrance than a help.

The reason for scorecard failure is easy to explain, and is the cause of similar disappointments in many organizations. The scorecard system was overly complex, and far too unwieldy and cumbersome to use as a practical management tool.

In formulating the Balanced Scorecard system, the management team chose too many objectives and measures. For instance, a total of nine objectives and 30 measures were identified for the finance perspective alone. The complete Balanced Scorecard comprised 94 measures. “It was recognized that there were far too many measures in the scorecard and that managers became too busy managing the scorecard rather than managing with the scorecard,” recalls the Balanced Scorecard Manager.

Creating an Improved Scorecard System

The management team chose not to abandon the scorecard, preferring to revisit and substantially simplify. “The team believed that the Balanced Scorecard system would serve its intended purpose if there were fewer measures and if critical success factors (CSFs) were identified to enable a sharper focus on our strategic initiatives.”

Key Business Indicator Project

To move the scorecard program into its next level, a Key Business Indicator (KBI) project was launched, consisting of two phases. Phase A established the strategic KBIs for the senior management team (showing their responsibility for the company-wide scorecard). In phase B the strategic KBIs were cascaded organization-wide and linked to functional KBIs.

Phase A began with the development of a Project Initiation Report, which outlined project fundamentals such as purpose, objectives, score, deliverables, key tasks, CSFs, milestones, resources and risk. To create this report, each member of the management team was interviewed individually, which ensured their input was secured from the project’s launch.

It was from these interviews and further reviews of the company’s ‘current reality’ and, crucially, by learning from the first attempts at creation and deployment that the second, and successful, Scandinavian Bottlers Balanced Scorecard system was forged and implemented.

What the ‘Improved’ Scorecard System Looks Like

The ‘improved’ scorecard system retained the original four scorecard perspectives of financial, customer, business process and human capital & organizational learning. The strategic objectives for each were as follows:

Financial

- Deliver value to stakeholders (shareholders, employees, local authorities/community, trade customers and consumers) on a long-term basis
- Capture all profitable volume growth
- Establish a low-cost bottling operation. The company’s stakeholders comprise.

Customer

- Be the number one profit partner to its customers
- Deliver superior customer service at the lowest possible price

Business Process

- Establish an effective channel marketing process
- Ensure top quality volume forecast information
- Establish an efficient production process; establish an efficient sales process.

Human Capital and organizational Learning

- Ensure that Scandinavian Bottlers has highly motivated and empowered employees
- Retain and develop top talent

These strategic goals were captured on a Strategy Map with clearly delineated cause and effect relationships.

Each objective has supporting KPIs. Demonstrating that they had learnt from the original scorecard effort, a total of just 20 indicators were chosen to support the equally focused 12 objectives. Also identified were CSFs for meeting the KBIs and key initiatives that would flow from the CSFs. Internally the scorecard was known as the red thread as it clearly communicates to all within the company the strategic story of

Scandinavian Bottlers.

For example, consider the customer objective to ‘Deliver top customer service at the lowest possible price’. This is supported by three KBIs: ‘perfect order’, ‘channel profitability’, and ‘customer satisfaction rate’. These KBIs are supported by the CSF: ‘ensure an efficient/effective order, sales, bottling (OSB) process as well as a ‘system set-up to ensure an optimal balance between customer service and associated costs’. The CSF is supported by the key initiatives of: ‘call centre set-up and assign OSB process ownership’; ‘set perfect order targets and start to measure’, ‘set service levels and profit targets per channel’, and ‘create customer service relationship process and measures’.

Assigning Cross-Functional Responsibility for Performance

To ensure KBIs receive required attention and focus, responsibility has been assigned to a relevant function. Crucially, how other functions impact the achievement of this KBI is also identified and has responsibilities set. For example, finance owns the strategic objective of cash operating profit, and is therefore responsible for managing that KBI enterprise-wide. However the sales and C&OM (customer and operations management) functions also have a strong influence on whether or not this KBI is achieved. Therefore they are assigned a secondary responsibility. “By doing this, we were able to communicate the importance of cross-functional co-operation in achieving the KBI targets,” says the Balanced Scorecard Manager.

Ongoing communication of progress against the scorecard measures is enabled through regular employee meetings led by the functional general managers and through a company-wide Intranet. The intranet includes a documented definition of each of the 20 strategic KBIs.

The definition also includes the strategic focus and perspective that the KBI supports, the reporting frequency, KBI formula, data source, corrective action taken of the KBI drifts, the function that owns the KBI, and an individually-named KBI owner.

Finance Functional Scorecard

Pivotal to strategy operationalization is the creation of functional scorecards. The finance scorecard, for example, includes company-wide KBIs as well as function-specific initiatives. Therefore ownership of strategy implementation (but not of course the strategy itself) is devolved to the appropriate level where execution can be best managed.

The finance function scorecard takes the Scandinavian Bottlers scorecard and focuses on the strategic KBIs, CSFs and key initiatives for which it has been assigned company-wide responsibility (for example, cost per liter and COP). It then developed a robust implementation and reporting plan. Alongside this, CSFs and key initiatives were set that measured and improved finance’s service performance to the rest of the organization.

Against the Scandinavian Bottlers financial perspective strategic goal ‘deliver value to our stakeholders on a long-term basis’ the finance function’s strategic KBI is COP, and a CSF is ‘creating a profit and loss focused organization’. Key initiatives include ‘implementing an enterprise-wide business resource system’ and ‘margin minder’ (essentially focusing managers’ attention on margin management). Exception reports/measures include ‘annual spending versus budget and appropriation’.

Another Scandinavian Bottlers strategic goal from the financial perspective is ‘capture all profitable volume growth’. Within the Scandinavian Bottlers’ Balanced Scorecard, this is supported by the strategic KBI, ‘Scandinavian Bottlers delivered volume’. This, in turn, is supported by the ‘ensure a profitable package and channel mix according to the channel marketing strategy’. Finally this is supported by key initiatives that include ‘brand mix budget per region’.

Within the finance scorecard, ‘capture all profitable volume growth’ is also a strategic objective, but given the responsibilities of the finance department this is broken down into two goal themes. In the first theme it is supported by the CSF ‘control of net net price’, by the KBI ‘net net price per physical case’, and key initiatives include ‘establish and implement pricing controls’ and ‘establish control and sales on promotion price’. Finally, exception reports include ‘actual net net price per physical case versus budget and previous estimate’.

For the second theme, the CSF is ‘control of package mix’, the KBI is ‘volume in liters per package versus total volume delivered’ and the key initiatives include ‘action-oriented review of rolling estimates’, with exception reports including ‘rolling estimates per division.’

From the organization’s customer perspectives, a strategic goal is ‘to be the number one profit partner to its customers’. This is supported by finance delivering strategic goals on its scorecard such as ‘establish efficient financial support to the organization,’ which includes a key initiative of ‘channel profitability package’.

Within the organization’s business process perspective, a strategic goal is to ‘establish an efficient sales process’. This goal also appears on the finance scorecard as does the organizational KBI ‘correct invoice rate’ and its CSF of ‘establishing an efficient billing process’. A key initiative here is ‘active follow-up of customers with delayed payments’ and measures are around days sales outstanding.

Within the human capital and organizational learning perspective, the strategic goals, strategic KBIs and CSFs are owned by the human resource function with secondary ownership by all other functions. This, therefore, delivers the message of the importance of employee development company-wide. The measures are the same within the functions as they are within the Scandinavian Bottlers scorecard. There are functional and enterprise-wide scores for EOTS (employee opinion trend survey), regretted turnover (loss of key staff) and ‘promotion from within’. A corporate and functional CSF is 100% execution of personal development and career plans. Therefore, scores can be shown at the functional level and rolled up to an aggregate Scandinavian Bottlers score.

Involving the Finance Staff

Central to finance scorecard creation were dedicated work sessions in which a team of senior finance staff inputted into the scorecard design. The Balanced Scorecard manager says:

“The finance leadership group first provided input to what was to be included in the overall scorecard design, then developed definitions and methods for measurement of the agreed goals. The overall finance goals, initiatives and how they fitted with the overall company scorecard, goals and initiatives, were then presented and discussed within the finance department as a whole.”

Creating the aligned finance function scorecard was the responsibility of the functional head, facilitated by an assigned finance staff member responsible for co-coordinating the scorecard development process. The Balanced Scorecard manager says:

“The assigned finance staff member worked closely with the team developing the overall scorecard, and thereby gained the necessary knowledge to drive the process within finance. The person then worked, both via the finance leadership team meetings and via direct one-to-one sessions with the CFO and the finance managers responsible for the respective goals, in developing definitions, measurements, and a standardized reporting.”

Before being implemented, the finance scorecard went through a careful validation to ensure alignment with the overall Scandinavian Bottlers scorecard.

There is only one overall finance scorecard. However, as the Balanced Scorecard Manager explains: ”The overall functional goals are broken down by sub-function and by responsibility area which, in turn, are broken down into individual targets/initiatives. This ensures the visibility of the cause and effect relationship between individual actions through to corporate level objectives.

Practical Guidelines for Succeeding with the Balanced Scorecard

In conclusion, The Balanced Scorecard Manager gives these practical guidelines for succeeding with the Balanced Scorecard.

1. Ensure Continuity

This has four elements:

A) Ensure a dedicated Balanced Scorecard sponsor who is accountable for achieving continuity – e.g., the CEO
B) Ensure integration of the Balanced Scorecard with the ABP process, so it is an ongoing process
C) Ensure that the functional scorecard is the basis for individual objective setting as achieving accountability is critical for success
D) Ensure a regular and consistent follow-up on the Balanced Scorecard with corresponding corrective actions

2. Ensure Communications

this has five elements:

A) Ensure that all employees easily understand the scorecard information.
B) Ensure a user-friendly communication tool that is accessible for all, e.g., an Intranet.
C) Ensure that the scorecard information is timely and relevant.
D) Ensure that both progress and corrective actions are communicated – success stories are important.
E) Ensure two-way communication between the management group and employees, such as quarterly employee forums.

3. Ensure Follow-up

this has four elements:

A) Ensure a regular and consistent follow-up; e.g., a standardized Balanced Scorecard report as a permanent agenda item at the monthly top management meetings.
B) Ensure an action-oriented focus, e.g., the Balanced Scorecard report should focus on the actions to be performed for target achievement (next steps definition during the top management meeting)
C) Ensure that the red thread is followed during the report, e.g., strategic KBIs to exception reports to key initiatives.
D) Ensure that each strategic initiative has a project plan that can be monitored.