M a rc h – A p r i l 20 04

Volume 6, Number 2

HARVARD BUSINESS
SCHOOL PUBLISHING

Balanced Scorecard REPORT

INSIGHT, EXPERIENCE & IDEAS FOR STR ATEGY- FOCUSED ORGANIZ ATIONS
B A L A N C E

Another exclusive excerpt from Kaplan and Norton’s new book, INSIDE THIS ISSUE:
Strategy Maps: Translating Intangible Assets to Tangible Outcomes
In Context............................6
Follow the Money: IT Finance
Part Two of a Two-Part Series and Strategic Alignment
“IT organizations must get out of
Organization Capital: Leadership, the business of making strategic
decisions on behalf of the enter-
O N

Alignment, and Teamwork prise.” So says Robert Gold, strategic

IT management practice leader at
BSCol, in this probe of IT spending,
By Robert S. Kaplan and David P. Norton budgeting, resource allocation, and
accounting. Gold offers a prescrip-
We’ve said it often: managing strategy is synonymous with tion for overcoming the widespread
mismatch between IT’s responsibili-
managing change. And it’s through intangible assets — organization ties and IT funding practices to
capital — that an organization mobilizes and sustains the change achieve strategic alignment
necessary to execute strategy. In Part I (BSR January–February 2004), between IT and the enterprise.

we examined culture, the first of four components of organization Case File: A Work in Progress......9
capital. Here, we continue our discussion of the remaining three: IT Transformations Spur
Enterprisewide Strategic
leadership, alignment, and teamwork (knowledge sharing). Together, Alignment
they help define the organization’s change agenda. It’s been the experience at countless
organizations: the launch of a trans-
formation effort reveals fundamental
Leadership gaps in (and misperceptions about)
strategy and process. Serena Frank,
When a company changes its strategy, its people must do things differently as an IT strategy professional, recounts
well. And it is the job of leaders at all levels of the organization to help the pitfalls and progress of BSC-based
employees identify and understand the changes needed to execute the new IT transformation initiatives at
two companies she’s worked for —
strategy and to motivate and guide them toward new ways of working. initiatives that helped foster
enterprisewide alignment.
In Part One, we introduced the concept of an organization change agenda.
This type of agenda defines the specific shifts in organization climate required New Perspectives..................12
by the new strategy. Through our Balanced Scorecard (BSC) research database The Need for a Venture Scorecard
we’ve identified seven generic behaviors that executives have typically cultivated Resource constraints, lack of
performance metrics, frequent
as part of their BSC implementations. (See Figure 1, left column.) Since each shifts in direction, multiple masters
organization and its strategy are different, the organization change agenda with disparate goals — these are
must obviously be tailored to each situation. Another important function of the but some of the challenges ventures
struggle with. As with any mature
change agenda is that it helps clarify the leader’s job. organization, strategy execution is
everything for start-ups. But in a
To ensure that it gets the kind of leaders needed to execute the strategy, milieu that shuns process, no
the organization should create a Leadership Competency Model. This model management methodology has
identifies the specific traits that leaders must exhibit to support the strategy taken hold to help ventures stay on
course. Consultant Gary Bolles has
and is derived directly from the organization change agenda. the answer: a Venture Scorecard.
Figure 1 illustrates the Leadership Competency Profile for Finco, a disguised BSC @ Work ........................15
financial services company. Finco provides a complex array of financial Five Easy Steps for Developing
instruments to corporate investors as part of its strategy of providing a “total Your BSC Measures
customer solution.” In reviewing the strategy, we identified eight behavioral In their quest for perfection, many
BSC project teams find the measure
changes that Finco leaders were responsible for mobilizing. As shown in selection process complicated
Figure 1, the changes began with an emphasis on delivering “high-quality and lengthy. It needn’t be — if you
solutions that meet clients’ business needs,” to focus on delivering value to the follow these five simple steps.

Continued on next page

Balanced Scorecard Report

client. Outstanding leaders were Organizations will typically use Balanced Scorecard Report
expected to practice this behavior employee surveys to see how Editorial Advisers
themselves and inculcate it in an executive measures up against Robert S. Kaplan
Professor, Harvard Business School
others. The strategy also called the ideal traits listed in the David P. Norton, President
Balanced Scorecard Collaborative
for building long-term relation- Leadership Competency Profile. Walter Kiechel III
ships. Helping clients solve prob- A staffer might solicit information Editor at Large, HBS Publishing
lems required a more innovative from subordinates, peers, and Executive Editor
Randall H. Russell
environment than Finco had superiors about a leader’s mastery Balanced Scorecard Collaborative
previously established, as well as of the critical skills; an external Editor
Janice Koch
a focus on results. Besides these unit might also solicit such input. Balanced Scorecard Collaborative
five value-creating behaviors, This feedback is used mainly for Consulting Editor
leaders were also expected to coaching and developing the Christina Bielaszka-DuVernay
Managing Editor – Newsletters, HBS Publishing
build competencies that would leader, but an organizational unit Publishers
improve the organization’s ability can also aggregate the detailed Robert L. Howie Jr.
SVP, Balanced Scorecard Collaborative
to execute strategy: translating (and confidential) data from the Angelia Herrin
the vision (“shaping strategy”) individual reviews to create a status Group Editor – Newsletters, HBS Publishing
into discrete functional plans to report on leadership competencies Circulation Manager
Paul Szymanski
which employees could align needed throughout the organization. Newsletters, HBS Publishing
themselves; spurring open com- Design
munications to build commitment; Alignment Robert B. Levers
Levers Advertising & Design
fostering teamwork and promoting
Organizational change expert Letters and Reader Feedback
knowledge transfer (“fostering Letters, editorials, ideas for articles, and
Peter Senge, in The Fifth other contributions may be submitted to:
organization learning”) rounded Randall H. Russell, Balanced Scorecard Report,
Discipline: The Art and Practice 55 Old Bedford Road, Lincoln, Mass., 01773
out the list of desired leadership or [email protected].
of the Learning Organization,
competencies. Subscription Information
To subscribe to Balanced Scorecard Report, call
Figure 1. The Leadership Competency Model at Finco 800.668.6705. Outside the U.S., call 617.783.7474.
Web: bsr.harvardbusinessonline.org. For group
subscription rates, call the numbers listed above.
Organization Change Finco’s Leadership Services, Permissions, and Back Issues
Agenda (generic model) Competency Profile Balanced Scorecard Report (ISSN 1526-145X)
is published bimonthly. To resolve subscription
service problems, please call 800.668.6705.
• Focus on client value Outside the U.S., call 617.783.7474.
Outstanding leaders deliver high-quality solutions E-mail: [email protected]
Behaviors that create value

that meet clients’ business needs Copyright © 2004 by Harvard Business School
• Focus on the customer
Publishing Corp. Quotation is not permitted.
• Cultivate key relationships Material may not be reproduced in whole or in part in
Outstanding leaders build and maintain relationships any form whatsoever without permission from the
that promote Finco’s market presence publisher.To order back issues or reprints of articles,
or for information about group subscription rates,
• Drive innovation please call 800.668.6705. Outside the U.S., call
• Be creative and innovative 617.783.7474.
Outstanding leaders promote innovation;
E-mail: [email protected]
they are open to change
Web: bsr.harvardbusinessonline.org
• Deliver results Harvard Business School Publishing is a not-for-
• Deliver results Outstanding leaders deliver superior results profit, wholly owned subsidiary of Harvard
to all stakeholders University.The mission of Harvard Business School
Publishing is to improve the practice of management
and its impact on a changing world. We collaborate to
• Shaping strategy create products and services in the media that best
Outstanding leaders understand how vision is serve our customers — individuals and organizations
Behaviors that help execute strategy

that believe in the power of ideas.

implemented through function-related strategies
• Understand the mission, that achieve sustainable competitive advantage Balanced Scorecard Collaborative™ is a new kind of
vision, and values professional services firm dedicated to the worldwide
• Building commitment awareness, use, enhancement, and integrity of the
• Create alignment and creativity Outstanding leaders communicate openly, gaining Balanced Scorecard as a value-added management
process. We partner with organizations to execute
• Communicate openly support of others, to support Finco’s vision and strategy, transfer knowledge, build capabilities to
core values deliver results fast, and help make strategy execution
• Work as a team a core competency. Our services include: education
• Fostering teamwork (conferences, seminars, publications), training (public,
Outstanding leaders create teamwork across in-house, certification, centers of excellence), and
consulting (the Strategy-Focused Organization,
individuals, organizations, and cultures human capital, IT, customer management). To learn
more, visit www.bscol.com or call 781.259.3737.
• Fostering organization learning
Outstanding leaders endure continuity of the
business through knowledge transfer and increasing
intellectual capital Some references in the To Learn
More sections may require readers
to join BSC Online. If you are not yet
The eight competencies identified in Finco’s Leadership Competency Profile helped a member, we invite you to become
the company achieve its “total customer solution” strategy. one — membership is free. For
details, visit www.bscol.com.

2
 March–April 2004

Figure 2. Measuring Alignment and Teamwork: Typical Measures

Organization Change Finco’s Leadership

Agenda (generic model) Competency Profile
• Focus on client value
Outstanding leaders deliver high-quality solutions
Behaviors that create value

that meet clients’ business needs

• Focus on the customer
• Cultivate key relationships
Outstanding leaders build and maintain relationships
that promote Finco’s market presence
• Drive innovation
• Be creative and innovative Outstanding leaders promote innovation;
they are open to change
• Deliver results
• Deliver results Outstanding leaders deliver superior results
to all stakeholders

• Shaping strategy
Outstanding leaders understand how vision is
Behaviors that help execute strategy

implemented through function-related strategies

• Understand the mission, that achieve sustainable competitive advantage
vision, and values
• Building commitment
• Create alignment and creativity Outstanding leaders communicate openly, gaining
• Communicate openly support of others, to support Finco’s vision and
core values
• Work as a team
• Fostering teamwork
Outstanding leaders create teamwork across
individuals, organizations, and cultures
• Fostering organization learning
Outstanding leaders endure continuity of the
business through knowledge transfer and increasing
intellectual capital

Here’s how a variety of actual organizations define and measure alignment and teamwork (knowledge sharing).

stresses that broad-based achieving high-level objectives. understand. Second, leaders must
organizational change requires Encouraging and empowering ensure that individuals and teams
alignment in which all members individual initiative in an unaligned have local objectives (with associ-
of a team have a commonality organization leads to chaos, as ated rewards) that, if achieved,
of purpose, a shared vision, the innovative risk takers pull contribute to achieving the targets
and an understanding of how the organization in contradictory of the high-level objectives.
their personal roles support directions. The effect is similar Leaders create strategic awareness
the overall strategy. “Alignment to that of the self-declared job through a multifaceted communi-
is the necessary condition before description of a new business cations program involving a wide
empowering [the individual].… school dean: “taking 60 puppy range of channels — brochures,
[Once aligned] the individual will dogs for a walk without a leash.” newsletters, town hall meetings,
empower the whole team.”1 An orientation and training programs,
Achieving alignment is a two-
aligned organization encourages executive talks, intranets, and
step process. First, leaders must
employee empowerment, innova- bulletin boards. Organizations
communicate the organization’s
tion, and risk taking because typically use employee surveys
high-level strategic objectives in
individual actions are directed at to determine whether employees
ways that every employee can
3
Balanced Scorecard Report

are aware of and understand A sports team would never enter While this proactive approach
the high-level strategic objectives. the field of play until every can be somewhat obtrusive, it
Figure 2 shows how several player understood the game plan; also recognizes that most employ-
organizations measure alignment. otherwise, there would be chaos. ees are too preoccupied with
Organization A (Figure 2), a Organizations must make the their immediate tasks to take
healthcare provider, uses a portion same effort to ensure that every the time to search for existing
of its annual employee survey employee understands the strategy. company information that might
to quantify the percentage of The extent to which they succeed be relevant and valuable to those
employees who can identify in achieving this alignment very activities.
the organization’s strategic determines the value of their
Knowledge management
priorities. Other organizations organization capital.
systems generally consist of:
sample employee awareness
more frequently, measuring the Teamwork • Databases and database man-
effectiveness of their employee (Knowledge Sharing) agement systems that collect
education program in the same and store the knowledge base
There is no greater waste than
way they would measure an
a good idea used only once. • Communication and messaging
advertising campaign aimed at
And there is no asset with greater systems that retrieve and transmit
potential customers.
potential for an organization the material
Organizations also achieve than the collective knowledge of
• A secure browsing feature
strategic alignment by linking its employees. Many companies
that allows employees to
employees’ individual objectives today use formal knowledge
search databases remotely,
and the reward/recognition management systems to generate,
even from public access
system to business unit and organize, and distribute knowledge
facilities, while protecting
corporate objectives. Organization throughout the organization.2
against unauthorized use.
B, a mutual funds company,
Generating content involves
Organization C, another health- The challenge is to find ways to
identifying content that might be
care company, and Organization motivate individuals to document
relevant to others in the organiza-
D, a national bank, all modified their ideas and knowledge so that
tion and then getting people to
their personal goal-setting processes they can be available to others.
submit the relevant material to
when they introduced the BSC. The simplicity of this thought is
an electronic database. Most
They educated employees about belied by its difficulty to implement.
organizations have to go through
the organization’s strategy and Yet this difficulty did not dissuade
a cultural change to shift the
Balanced Scorecard, then asked most organizations in our BSC
employee mindset from one of
them to link their personal objec- research database from identifying
hoarding knowledge to one
tives to the enterprise scorecard. teamwork and knowledge sharing
of sharing ideas. Steve Kerr, chief
The companies monitored the as a strategic priority in the learn-
learning officer at Goldman Sachs
progress of this program by ing and growth perspective of
& Co. and former chief learning
measuring the percentage of their BSCs.
officer at General Electric (GE),
employees with objectives linked
has noted that a prime component Figure 2 shows representative
to the BSC. Organization E, a
of former CEO Jack Welch’s examples of the objectives and
process manufacturing company,
management system was to break measures for best-practice knowl-
pushed the alignment idea further,
down the barriers — both vertical edge sharing. Organization G, a
requiring every employee to build
and horizontal — across the chemical company, monitors the
his own Balanced Scorecard.
organization so that knowledge number of best-practice ideas that
Finally, Organization F, a city
transfer could occur.3 are identified and used. It also
government, had already linked
measures output per employee to
employee goals to the Balanced Many organizations spend signifi-
assess the economic impact from
Scorecard. Currently in year three cant sums on formal knowledge
knowledge sharing. Organization
of its program, the organization management systems. These
H, a mutual insurance company,
now uses the Balanced Scorecard systems must provide easy access
uses its corporate university to
to align its training and development to users. A “push” system catalogs
transfer knowledge. It measures
program to the strategy. It meas- the needs of users and selectively
the number of hours of training
ures the percentage of staff with distributes information, often via
received by each individual. Finan-
training and development linked e-mail, when it recognizes its
cial services company I monitors
to the BSC. potential value to a user.
the percentage of employees who

4
 March–April 2004

transfer knowledge in a “work-out” Organizational Capital: conventionally used to assess

process, patterned after the one A Summary organizational performance. The
created by Kerr and a team at Balanced Scorecard movement
The learning and growth perspec-
GE.4 Pharmaceutical company J has encouraged organizations
tive is the foundation of every
and software company K use for- to address this measurement
organization’s strategy. The
malized knowledge management challenge. Companies can now
measures in this perspective are
systems to transfer knowledge, measure what they want, rather
the ultimate lead indicators; they
and measure the level of system than wanting only what they can
represent the organization’s
usage. Company K also monitors currently measure. And they’ve
intangible assets, which create
how up to date the material in its learned that just the simple act
value by their alignment to the
knowledge management system of attempting to measure the
organization’s strategy. That is
is. Financial services company L capabilities of employees, knowl-
why only the Balanced Scorecard,
focuses on the comprehensive- edge systems, and organization
not financial measures, can
ness and currency of information capital, no matter how imprecise,
quantify the value that intangible
in its performance databases. communicates the importance of
assets create.
Rather than measuring the these drivers in the value-creation
movement of ideas across the Human capital is enhanced when process. The approaches described
organization, manufacturing development investments are in this article illustrate how
company M tracks the movement concentrated in the relatively few organizations have developed
of key people who carry ideas, strategic job families that implement new ways to measure, and
measuring the number of cross- the processes most critical to the subsequently to create, their organ-
divisional personnel assignments. organization’s strategy. Information ization capital, thus stimulating
capital is most valuable when the behavioral changes needed to
Organizations G through M in
it provides the vital infrastructure become a successful Strategy-
Figure 2 measure knowledge
and strategic applications that Focused Organization. n
sharing with input or process
complement human capital in 1
Peter M. Senge, The Fifth Discipline:
measures, not output or outcome
promoting outstanding perform- The Art and Practice of the Learning
measures, which are preferable. Organization (Doubleday/Currency, 1990).
ance in strategic internal processes.
Either these organizations deem
The even more intangible organi- 2
The content on knowledge management
it too difficult to measure the processes has been drawn from D. Garvin
zation capital —- culture, leadership,
outputs of knowledge sharing or and A. March, “A Note on Knowledge
alignment, and teamwork — is Management,” Harvard Business School
they believe that these outputs
equally vital for successful strategy Teaching Note #396-031 (November 1997).
show up in the form of improved
implementation. Organizations 3
S. Kerr, “Transformational Leadership:
performance elsewhere in their Lessons in Mastering Change at General
introducing a new value proposition
strategy maps. It seems, however, Electric,” presentation at the Balanced
must create a culture of customer- Scorecard Collaborative North American
that organizations could do better
centric values. The transformation Summit (October 2002).
at measuring outputs, using such
to the new strategy requires 4
The GE Work-Out, widely documented,
metrics as “the number of new
exceptional leadership throughout is a methodology that fosters knowledge
ideas transferred or adopted” or sharing and organizational problem
the organization. The new directions
“the number of new ideas and solving among employees up, down, and
for the organization require that across organizational levels.
practices shared with other teams
communication and performance
and organizational units.” Jack
management systems be aligned To Learn More
Welch, famous for making learning
to what the organization wants to
an organizational priority at GE, Among the many related articles
accomplish. Teamwork, in the that have appeared in BSR are:
would question division heads
form of information and knowl-
about new ideas they had adopted “Measuring the Contribution of
edge sharing, is essential. The Human Capital,” July–August 2001
from other GE units and new
organization change agenda (Reprint #B0107A)
ideas that had originated within
defines the target of this focus “Managing the Development of Human
their units that they shared during Capital,” September–October 2001
and alignment.
the year with other GE units. ( Reprint #B0109A)
Such questioning, backed up by Some shy away from measuring “Managing Strategy Is Managing Change,”
actual performance measures, these intangible assets — human January–February 2002 (Reprint #B0201A)
powerfully reinforces a culture of capital, information capital, and (all by David P. Norton) and
teamwork and knowledge sharing. organization capital — because
“Tear Down These Walls! How to Leverage
by their very nature the measures Intellectual Capital,” by Dr. Steven Kerr,
will be “softer,” or more subjective, July–August 2002 (Reprint #B0207D)
than the financial measures
Reprint #B0403A