In less than a 100 words…
A 3rd Generation Balanced Scorecard (BSC) monitors the performance of all or part of an organisation, towards (usually) strategic goals. All management teams can benefit from aligning around a focused set of priorities and having clear and agreed means of monitoring progress against these as provided by a well designed and implemented Balanced Scorecard. These can be linked together to ensure alignment vertically and horizontally within organisations. The key for Functions is for their design work to follow the Corporate and Divisional/Business Unit design work so that it is clear what new demands will be made on functions using a process we call ‘cascading’. This is explained more fully in 2GC FAQ on Cascading Multiple Balanced Scorecards.
Benefits of 3rd Generation Balanced Scorecard generally
Effective Balanced Scorecards help management teams track progress in achieving agreed targets, and reflect the strategic priorities relevant to those teams. Best practice design processes, i.e. 3rd Generation Balanced Scorecard, take as their starting point a shared and clearly articulated description of how the organisation should look at some future date -‘destination’ (usually three to five years’ away). Priority strategic objectives (and associated measures and targets) are then selected by looking at the key activities that the management team needs to focus on if the future described is to be realised.
No other management tool is more effective at translating high-level strategic goals into locally relevant activities and priorities as the 3rd Generation Balanced Scorecard methodology. The holistic structure of best-practice design promotes increased focus on the practical interventions required to trigger changes in behaviours and performance within an organisation. Adoption of such thinking can result in increased demand for the use of services provided by HR and other staff functions, such as recruiting, performance appraisal, budget allocation and reporting, quality management activities, IT initiatives, etc. Increased focus, formed in the context of a clear strategic ‘destination’, also can result in more clearly defined requirements of staff functions, supported by stronger sponsorship from other parts of the organisation.
Benefits of Balanced Scorecard being applied within staff Functions
3rd Generation Balanced Scorecard describes an attainable future that satisfies the interests of the organisation’s stakeholders (the ‘destination’), and documents their ideas about how this future state will be obtained (through the description of strategic objectives and their causal links). Functional management teams, such as HR, can use information from the ‘corporate’ and divisional or business unit scorecards to create their own ‘aligned’ scorecards. These can then be turned into functional objectives to be measured and monitored.
Developing a Balanced Scorecard for a Staff Function
2GC’s experience is that the execution of strategy is rarely a straightforward issue controlled and delivered in full by line managers. Functions are crucial to business change, irrespective of whether functions are integrated into business units or part of a centralised unit.
Divisional and functional management teams can use information from a ‘corporate’ scorecard to create their own ‘aligned’ scorecards, each containing a description of a locally relevant strategic ‘destination’. Using destinations builds a strong platform to support further cascading into the organisation in a way that highlights the relevant issues for a division or function – see Diagram below. This cascade process as shown in the diagram below should, (and normally does), include functions such as HR, IT and Finance which should follow the lead and details of both the corporate and divisional scorecards.
Staff functions are unusual in that, compared to other more operational units, the bulk of demands for their services come from other parts of the same organisation. As 3rd Generation Balanced Scorecards often include details of future initiatives relating to use of such services, it makes sense for HR and other staff function scorecards to be developed only once those in the rest of the organisation are complete.
Also, the development process used for HR and staff function 3rd Generation Balanced Scorecards needs to include activities to draw in information about goals and priorities from other parts of the organisation. An assessment of how these will translate into expectations about the nature and amount of services that will be demanded of the function by the organisation becomes a core input to the scorecard design. Ensuring that these expected demands can be satisfied is often a feature of the function strategy going forward.
What does a Function get out of this…?
Best-practice Balanced Scorecard design promotes increased focus on the practical interventions required to trigger changes in behaviours and performance within a function as much as it can for a whole organisation. Building a clear set of priorities can result in increased demand for the use of services provided by functions, for example recruiting, performance appraisal, budget allocation and reporting, Quality Management activities, IT initiatives, etc. Increased focus, formed in the context of a clear strategic ‘destination’ also can result in more clearly defined demands and requirements being presented to staff functions, supported by stronger sponsorship from other parts of the organisation. Overall, 3rd Generation Balanced Scorecard can therefore improve the quality of demands placed on staff functions by others and the ability of functions to meet these demands.
In summary, cascading Balanced Scorecards to function can:
- Enable improved alignment behind strategic goals across the whole organisation by having functions contribute to the overall organisational destination;
- Provide greater clarity and consensus within a functional management team concerning their role in corporate goals and priorities;
- Give the functions more confidence to play a strategic role rather than be limited to operational matters at the behest of business unit leaders;
- Strengthen existing management processes, making them more focused on achieving and maintaining performance improvements;
- Provide a better and wider understanding of the role and contribution of shared services (e.g. HR, Finance) within the overall strategic context;
- Offer a more reliable basis for the awarding of incentive based pay for all managers as staff function managers are enjoined in the corporate objectives and can relate their personal objectives thereto.
We have worked with various clients with regard to functional cascades, for example:
- A UK based Pensions business - after Corporate and Business Unit Balanced Scorecards were created the three main functions of HR, IT and Finance produced subsidiary Balanced Scorecards;
- A UK based oil service firm -having produced a number of Divisional Balanced Scorecards 2GC prepared a Group Finance BSC;
- A major UK manufacturing company – 2GC used 3rd Generation methodology to build Balanced Scorecards for its Procurement, IT and Group marketing functions.