BSC for strategy planning
The pursuit of organizational clarity and alignment towards a strategic direction has preoccupied researchers and practitioners for many decades. Especially over the last 50 years, a variety of management concepts have been popularized and adopted by organizations with more or less success.
Integrating strategic management concepts
Some of the early articles on the topic of strategic planning and clarity focused on clarifying how the concept of planning applies to various settings (Pryor 1964, Smiddy, 1964) or in proposing frameworks for strategy formulation (Ansoff 1964). Two such management concepts that gained popularity since then are mission and vision statements.
Towards the end of 1990, the interest of both researchers and practitioners focused increasingly towards exploring the use of integrated approaches that link strategic management concepts related to corporate identity: mission, vision, values and capabilities or competencies (Raynor 1998, Stuart 1999).
The trend of integration of mission and vision statements in strategic management models or frameworks continued with the anchoring in the vision statement of concepts such as the Balanced Scorecard. Kaplan & Norton (1996) placed vision and strategy at the centre of the development of the Balanced Scorecard.
Since then a vast literature analyzing the connections between an organization’s approach to strategic planning and its business performance in relation with the Balanced Scorecard was developed (Ahn, 2001; Niven, 2002; Mooraj et al, 1999, Andersen et al, Kaplan and Norton, 2001).
Balanced Scorecard and strategy planning
Initially proposed as a performance measurement system, the Balanced Scorecard concept evolved over time to a more comprehensive performance management system, to finally be transformed in a strategic management system for managing organizational performance. (Brudan, 2008; Andersen et al, 2001).
One of the main characteristics of the Balanced Scorecard strategic management system is its strategic planning process. Several stages are identified as important to be performed during this process:
- Clarify vision, mission and organizational values, establish the organizational strategy and incorporate it into the Balanced Scorecard strategic management system
- Develop strategic objectives and performance measures and establish the cause and effect relations between them
- Set targets, align strategic initiatives, identify and allocate resource requirements to close the planning gaps, and enable targets to be achieved (Niven, 2002; Ahn, 2001; Kaplan and Norton, 2001, Andersen et al, 2001)
- Enhance strategic review and learning
During these several stage of the strategic planning process four critical documents that form the cornerstones of the Balanced Scorecard strategic management system need to be created.
Desired State of Evolution
In order to implement a logical and articulated strategic performance management system based on the Balanced Scorecard, an organization should clear identify what is the direction it is heading for, what it is trying to achieve. (Andersen et al, 2000 citing Senge, 1990 and Kotler, 1996). Thus, the process of integration of all strategic statements of an organization that comprises values, mission, destination statement and vision is facilitated by the creation of the Desired State of Evolution (Brudan, 2010).
The first level, “Purpose and Identity” is represented by the mission and values of the organization. The mission statement is essential, as it represents the reason why the organization exists. Linked to it are organizational values used by many organizations to drive behaviour, being considered an integral part of organizational culture. By linking them to the mission, desired state and vision, they become an important component of the strategy management system and key elements of organizational communication.
“Desired State”, the second level of components is represented by three sets of elements. This is an intermediary level that makes the link between mission and vision. It integrates the “destination statement” approach (Lawrie and Cobbold, 2004) of representing the desired state of the organisation at a future point, while adding by internal oriented capabilities, competencies, value drivers or key success factors and the projection of the organization in the external environment (Brudan, 2010)
The third level of the “Desired State of Evolution” is represented by the vision statement, as a representation of the desired state of the organization in a more distant future.
The sequence: Values -> Mission -> Desired State -> Vision represents a storyline that illustrates the desired evolution path of the organization.
Once the desired evolution path of the organization is established, the next step in the strategic planning process is establishing the most important strategic objectives required in order to achieve the desired state of the organization and making the connections between them. This process of mapping the strategic objectives is facilitated by the Strategy Map. From a Balanced Scorecard perspective, Strategy Maps are communication tools used to tell a story of how value is created for the organization. They show a logical, step-by-step connection between strategic objectives in the form of a cause-and-effect chain while providing a visual representation of the organization primary objectives and the relations established between them.
After the process of mapping the strategic objectives is completed the most relevant performance measures that capture the essence of the strategy needs to be identified for each objective. The set of performance measures structured in 4 perspectives: Financial, Customer, Internal Processes, People, Innovation and Learning, will be the centerpiece of the Balanced Scorecard system providing the point of focus and reference for the entire organization (Niven, 2002).
The four perspectives of the scorecard offer a balance between short-term and long-term objectives, between outcomes desired and performance drivers of those outcomes, and between hard objective measures and softer, intangible measures.
Portfolio of Initiatives
The last task in the strategic planning process based on the Balanced Scorecard is developing the performance targets and the supporting initiatives. In order to achieve the desired outcomes (targets) specific initiatives need to be identified and mapped to the strategic process. Initiatives are processes, projects or plans with a finite start and end date, that are meant to put the organizational strategy into action. In this context, Balanced Scorecard provides with an organized framework in which initiatives can be evaluated in the context of strategic significance. (Niven, 2002).
According with Niven (2002), effective initiatives will allow closing existing gaps that exist between current and desired performance, which in turn will drive the desired outcomes aimed, as long as a few conditions are followed.
- Any initiative, no matter how extensive or narrow is defined, needs to have the necessary resources allocated
- Each initiative should clearly document which objective they support
- Dependencies with other initiatives must be clearly established and all key milestones identified
- All initiatives must be updated on a constant base and reflected in the budgeting process
Once the Balanced Scorecard strategy planning process is completed it must be nurtured and constantly updated. As the Balanced Scorecard is a flexible framework, that can be updated at all times, one must secure that regular strategic reviews are performed in order to keep the strategy on track and updated with the latest developments in the organization’s internal and external environment.
- Ahn, H. (2001), Applying the Balanced Scorecard concept: an experience report, Long Range Planning, Vol. 34, pp. 441-461.
- Ansoff, H., I. (1964), A Quasi-Analytic Approach to the Business Strategy Problem, Management Technology, Vol. 4, No. 1, pp. 67-77.
- Andersen, H., Cobbold, I. & Lawrie, G. (2001), Balanced Scorecard implementation in SMEs: reflection in literature and practice, 2GC conference paper.
- Brudan, A. (2008), From Management Accounting to Strategic Execution and System Thinking: the Balanced Scorecard (r)evolution and new research agenda, 3rd Audit and Accounting Convergence, 2008 Annual Conference, Cluj-Napoca.
- Brudan, A. (2010), Desired State of Evolution – An integrating management tool, Proceedings of the 2010 ANZAM Conference, Brisbane, Australia.
- Cobbold, I. & Lawrie, G. (2002), The development of the Balanced Scorecard as a strategic management tool, 2GC Active Management.
- Kaplan, R. & Norton, D. (2001), The strategy focused organization, Harvard Business School Press, Boston, MA.
- Lawrie, G. & Cobbold, I. (2004), Third-generation balanced scorecard: evolution of an effective strategic control tool, International Journal of Productivity and Performance Management, Vol. 53, No. 7, pp. 611-623.
- Mooraj, S., Oyon, D. & Hostettler, D. (1999), The Balanced Scorecard: a necessary good or an unnecessary evil, European Management Journal, Vol. 17, No. 5, pp. 481-491.
- Niven, P. (2002), Balanced Scorecard step by step: Maximizing Performance and Maintaining results, Wiley, New York, NY.
- Pryor Jr., M., H. (1964) International Corporate Planning: How is it Different?, Management Technology, Vol. 4, No. 2, pp. 139-148.
- Raynor, M., E. (1998), That Vision Thing: Do We Need It?, Long Range Planning, Vol. 31, No. 3, pp. 368-376.
- Smiddy, H., F. (1964), Planning, Anticipating and Managing, Management Technology, Vol. 4, No. 2, pp. 83-91.
- Stuart, H. (1999), A definitive model of the corporate identity management process, Corporate Communications: An International Journal, Vol. 4, No. 4, pp. 200-207.