BSC in Utilities Sector

 

The utility sector plays a strategic role for the economical and social well being of a country. Accordingly the sector is generally strictly regulated and controlled by the governments in many countries, though in the last decades as several scholars point out (Foster et al, 2004; Bianchi and Montemaggiore, 2008) there has been an increasing effort to reform and privatize  it. This change of policy was made by many governments in the quest to revitalize the sector by improving the management efficiency and introduce in the front line of attention not only operational but also strategic issues.

 

Although the privatization policy has lead to the movement of many public utility assets in the private sector, many of the private utility companies still operate in a regulated environment, which make them to be comparable to public sector organizations. One of the common characteristics of both public and private utility companies specialized in electricity, gas or water services is the management of multiple stakeholders demands such as:

  • The government department that regulates the provided services
  • Local authorities that moderate and negotiate service delivery
  • End users of the services (Neely at al, 2006)

 

Due to the change policies implemented in the utility sector, which lead to the privatization on many public assets, but also to the dynamic complexities of the management tasks which have been dramatically increased by the fast technological evolution, rising concerns for environmental and social issues and rapid change in regulations (Foster et al, 2004), many companies felt the need for a change in their management systems.

 

In order to foster performance excellence by pursuing competitiveness and financial stability, traditional planning and control systems exclusively based on financial indicators were not any more sufficient in order to manage the interest of multiple stakeholders, provide an accurate strategic management direction and keep everything on track. In this context, several companies decided to adopt new performance management architectures based on the Balanced Scorecard.

 

Examples of such utility companies, both from the public and private sector that have adopted the Balanced Scorecard in their management system are starting to become more numerous in the last years. Among them we can outline several documented case studies of Balanced Scorecard implementation and use at EDF Energy from United Kingdom, Aurora Energy from Australia, Nova Scotia Power Inc from Canada, or a Public Water Company from the region of Palermo, Italy.

 

Balanced Scorecard at EDF Energy, United Kingdom

During 2000, the company faced several challenges amongst which:

  • A 3% income reduction
  • Re-adjustment of regulatory law
  • Strong pressure to improve customer’s supplies
  • Integration of two newly acquired companies

 

In order to face all these challenges the company decided the implementation of a performance management and measurement architecture based on the Balanced Scorecard that would be able to address four critical strategic objectives:

  • Improve productivity
  • Enhance reputation
  • Improve customer service, and
  • Be more focus on the use of its resources

 

The EDF Balanced Scorecard framework is build on the company Strategy Map that translates the company strategy and ambitions through an interconnected set of strategic objectives mapped according with the four traditional Balanced Scorecard perspectives (Neely et al, 2006).

 

Strategy Map - EDF Energy - BSC20.com

Source: Neely et al, 2006


For more details on the Balanced Scorecard implementation at EDF Energy follow the case study at the link listed below:

 

Balanced Scorecard at Nova Scotia Power Inc, Canada

Faced with changes in the utility industry, but also due to an internal business restructuring and realignment process which meant the transition to Strategic Business Units, Nova Scotia decided in 1996 the development of a new corporate strategy. As the new plan didn’t focus solely on financial performance goals, but took in considerations the needs of all key organizational stakeholders, including customers and employees, a new performance measurement system was decided to be introduced. The Balanced Scorecard system was decided to be adopted in order to serve the company strategic purpose.

 

While at its very beginning the Balanced Scorecard system at Nova Scotia Power Inc served strictly a measurement purpose, the new restructurings of the company in Strategic Business Units triggered a wave of changes in the BSC. Finally the Balanced Scorecard was linked with several critical systems such as the annual business plan and the budgeting process, being transformed in an integrated strategic performance management system that served the measurement, communication and strategic realignment purposes among others.

 

Roll out the Balanced Scorecard into organization

In order to secure the maximum effectiveness of the Balanced Scorecard system, it needs to be implemented at all organizational levels.

 

Before proceeding with this task, Nova Scotia Power Inc started the development process of the Balanced Scorecard at the corporate level in order to shape its strategic path and allow everyone on the organization a better understanding of the critical drivers of the company future success.

 

Nova Scotia Power Inc  - Strategic Directions

Strategies

Balanced Scorecard Perspectives

  • Cut costs
  • Financial
  • Build Customer Loyalty
  • Customer
  • Build the business
  • Internal process
  • Develop employee commitment
  • Learning & growth

Source: adapted from Niven (case study), 1998


Once the key strategic directions, each one corresponding with a Balanced Scorecard Perspective were identified, and the Balanced Scorecard strategic objectives, key performance indicators and corresponding targets were set, the next step was cascading the scorecard into the organization.

 

For more details on the Balanced Scorecard implementation at Nova Scotia Power Inc follow the case study at the link listed below:

 

Balanced Scorecard at Aurora Energy, Australia

Aurora Energy is a Tasmanian Government owned company established in 1998 to provide to the Tasmanian community services in the areas of electricity, retailing and distribution. The company also expanded its services to include provision of gas retailing services and telecommunication infrastructure services to government and large corporate customers. To better manage its activities, the company has implemented a performance management system based on the Balanced Scorecard. The Balanced Scorecard at Aurora Group is structured in 5 perspectives each one capturing a critical aspect of the company performance.

 

Balanced Scorecard - Aurora Energy - BSC20.com

Source: Aurora Energy website (Corporate reports), 2009

 

For more details on the Balanced Scorecard implementation at Aurora Energy follow the KPIs in Practice section of smartkpis.com at the link listed below:

 

Balanced Scorecard at Palermo Water Utility (Apam)

Palermo Water Utility or (Amap) has been running the municipal water provisioning and distribution for the area of Palermo since 1950. As a result of a new set of regulations imposed by the Italian government in 1994 in order to foster public utility efficiency and effectiveness but also due to several management dysfunctions, a research project was decided to be set in place in order to develop a Balanced Scorecard.

 

Among the main critical issue identified buy the BSC project team at Palermo Water Utility were:

  • Negative operating income was balanced by public contribution and influenced by the political power of the Board of Directors
  • Managers were focusing on specific tasks, without being aware on how they are contributing to the company’s results
  • The management information systems was based on a set of reports that mainly addressed bureaucratic issues and not strategic information needed to set the performance pace in the company
  • Evaluation programs were used for control and “punishment” of bad performance instead as a tool to enhance and improve efficiency in work

 

The new Balanced Scorecard framework, designed by the project team strived to give a new identity and direction for the company by outlining its strategy: “ To improve the company image by higher efficiency and effectiveness in the provision of water in order to increase its competitiveness for the management of the integrated water service in the area of Palermo”


The Balanced Scorecard was structured according with the Kaplan and Norton’s BSC traditional perspectives, outlining the main strategic objectives, key performance indicators, targets and initiatives. The Balanced Scorecard framework was supported by a Strategy Map that shows the causal linkage between the Key Performance Indicators from each perspective.

 

Strategy Map - Water Utility Palermo - BSC20.com

Source: adapted from Bianchi and Montemaggiore, 2008

 

For more details on the Balanced Scorecard implementation at Palermo Water Utility (Apam) follow the case study at the link listed below:

 

References

 

BSC in practice : By industry

 

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