Introduction
In the context of Balanced Scorecard, the term cascade refers to the process of developing - usually within the same organisation - multiple Balanced Scorecards that are broadly in alignment and have used the same/similar design method. The cascade process is undertaken to maximise the coherence of subsidiary units’ goals and objectives, with those of the parent organisation. There are several ways to ensure an organisation’s Balanced Scorecards are aligned through cascading and this briefing aims to present some of the options, with recommendations.
The FAQ is informed by 2GC’s research and experience in facilitating successful cascades. Organisations who have benefited from 2GC’s experience in facilitating cascades include: United Biscuits, BP, Saudi Aramco, the Abu Dhabi National Oil Company, the UK Environment Agency, Saudi Electric Company, RPMI and the UK Department for Innovation, Universities and Skills.
The briefing first discusses why organisations cascade Balanced Scorecards, then reviews the two most common approaches used and ends with some comment on how to plan a cascade.
Why do organisations cascade Balanced Scorecards?
Cascaded Balanced Scorecards can be used for several purposes, but the two primary roles of a cascade are for performance reporting and performance management.
Performance Reporting
Some organisations use Balanced Scorecard to supply senior management with performance information on subsidiary organisational units. In this case senior management chooses the contents of the Balanced Scorecard, because they are the intended users of the information. Under this model of cascading, subsidiary Balanced Scorecards can be made to ‘add up’ – higher level objectives, indicators and targets are broken down and allocated across organisational units. However, the subsidiary management team usually have little influence as to the content of the Balanced Scorecard associated with their unit.
Performance Management
This is when the Balanced Scorecard is used to inform a management team about their unit’s performance. The content of the Balanced Scorecard should be the information that is most useful for that team, and so ideally the management team itself chooses the contents of the Balanced Scorecard. Under this model, multiple Balanced Scorecards within the same organisation are unlikely to ‘add up’. The objectives and indicators chosen by the various management teams will necessarily be distinctive. This is because each team encounters and prioritises divergent issues arising from the unique environments in which they operate and has specific activities/initiatives to manage. Unsurprisingly the senior management of the organisation has a strong interest in ensuring that these multiple Balanced Scorecards are consistent, co-ordinated, and aligned against common goals. This process of alignment is usually called ‘cascading’.
Purpose of the cascade - 2GC recommendation
The uses of Balanced Scorecard for performance management or performance reporting purposes are, in some respects, opposite ends of a spectrum. Both are useful, and we find that most organisation’s requirements are a combination: some performance reporting (to reassure senior management that all is well) while at the same time providing managers with information they can use to better manage their unit. In practice then, organisations will use the Balanced Scorecard for both purposes at the same time. Subsidiary units (e.g. functions, regional units, country units) will have some objectives and indicators that are mandated and non-negotiable, while most objectives and indicators are selected by the subsidiary management team itself. In 2GC’s experience this hybrid approach is perfectly acceptable and workable. However, 2GC recommends that mandated objectives and targets comprise no more than about 25% of the total to avoid subsidiary management questioning their role in the cascade process, and becoming de-motivated as a result.
Alternative Cascading Approaches
In practical terms, modern Balanced Scorecards can be cascaded either via Destination Statements, or via Strategic Linkage Models and their associated Objectives. A Destination Statement is a description of what the organisation is likely to look like at an agreed future date, usually 3-5 years hence. A Strategic Linkage Model (sometimes referred to as a Strategy Map) is a picture of cause and effect as defined by the managers of the organisational unit. It lays out the unit’s assumptions about what short to medium-term objectives are important in delivering strategic success, and makes explicit the links amongst objectives, and between objectives and longer-term strategic success. Both elements are produced as part of a modern Balanced Scorecard design process, such as the 3rd Generation Balanced Scorecard approach. Some older Balanced Scorecard designs only include the second (Strategy Map) element.
Cascading via the Destination Statement
The starting point for this approach is a high level Destination Statement – which describes a leadership team’s view of where the whole organisation needs to be at a nominated future date and will contain some major stakeholder driven goals. Subsidiary units interpret this document to produce unit-specific versions that describe how the organisation-wide changes will be reflected within the unit. This local description is often called a Contribution Statement. The Contribution Statement can be used to validate and communicate the unit’s understanding of the implications of the wider changes envisaged – promoting useful dialogue about the alignment of the unit’s understanding with that of the senior management team. The Contribution Statement, once agreed upon, can be used as the starting point for the development of a unit level Strategic Linkage Model.