Balanced scorecard in the Nordic countries - public sector experiences Dr. Nils-Göran Olve ; .

Balanced scorecard in the Nordic countries- public sector experiences

Dr. Nils-Göran Olve www.cepro.se; www.ida.liu.se/labs/eis/people/ngolve.html

2002 © ConcoursCepro. All Rights Reserved. 2

”The Nordic countries”?


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2002 © ConcoursCepro. All Rights Reserved.

First published in

1997, revised in 1999

(Also in Finnish 1998)

Wiley 1999;now translated

also into Spanish, Japanese, Korean,

Portuguese and Dutch

Capstone 2002


Agenda

• Why scorecards became popular in the Nordic countries

• Scorecard use in the public sector

• Some ideas for scorecard implementation and use


Why scorecards became popular in the Nordic countries


Du

rin

g t

he

pa

st

fou

r y

ear

s

”Market Cap”,shareholdervalue

EquityLiabi-lities

Assets250

Pre

miu

m

(=”I

nte

llec

tual

Cap

ital

”?)

”Unseen wealth”?- Ericsson’s value

SEK(bill.)

350


The Balanced Scorecard

Tomorrow

Yesterday

Today

Goals Measures

Goals Measures Goals Measures

Goals Measures

FinancialPerspective

Customer Perspective

Learning and Growth Perspective

Internal Process Perspective

Vision

Kaplan & Norton (1992, 1996, 2000)


Cus

tom

ers

Pro

cess

es /

Inte

rnal

eff

icie

ncy

Fin

anci

al /

Ow

ners

/ M

anag

emen

tD

evel

opm

ent

& r

enew

al

Strategic aims Critical Success Factors

From vision to action -- responsible: __________________

Action plansMetrics and targets

Vision:…...


The Balanced Scorecard Strategy Map(Robert Kaplan, 2000)

Improve Shareholder Value

Revenue Growth Strategy Productivity Strategy

Build the Franchise Increase Customer Value Improve Cost Structure Improve Asset Utilization

A Motivated and Prepared Workforce

Shareholder ValueROCE

New Revenue Services Customer Profitability Cost per Unit Asset Utilization

Price

Financial Perspective

Customer Perspective

Internal Perspective

Learning & Growth Perspective

Product/Service Attributes

Strategic Competencies

Strategic Technologies

Climate for Action

“Build the Franchise” “Increase Customer Value”

“Operational Excellence”

“Good Neighbor”

(Innovation Processes)(Customer

Management Processes)

(Operations & Logistics Processes)

(Regulatory & Environmental

Processes)

Customer Value Proposition

Quality

Operational Excellence

Customer Intimacy

Product Leadership

Customer Satisfaction

Customer Acquisition Customer Retention

Time Function Service Relations Brand

Relationship Image


• Great interest:– 27% of BUs in large Nordic firms in 1999, 61% ”within 2 years”– One Swede in 600 bought the book, plus other books – ”Gartner estimates that 40% of the Fortune 1000 companies will have

a Balanced Scorecard in place by the end of 2000”

• But: Disappointments not uncommon:– just an empty shell and CEO rhetoric– just one more software package– just additional key ratios

• How it was meant: a communication tool to…– agree on tasks– communicate experiences– celebrate success and learn from it

Where we are now: reflections on the current state of BSC projects


Down to individual employees

• A format for discussing expectations and achievements, and creating trust and motivation

• Empowered employees cannot be programmed. They need to share the vision

• Companies increasingly ask employees to share in building future capabilities ”on speculation”:– building customer relations– developing new skills and ways of operating– documenting for the future– …...

People need guidance and motivation for this!


To tell the story of our vision

• …to our employees

• …to customers, partners and others whom we engage in our ”imaginary organization”

• …to the market for new talents

• …to our owners and banks

• …to society at large

Not a static value, but a convincing and dynamic logical case why our way of preparing for the future will be rewarded!


Scorecard use in the public sector


The public sector in Sweden

• 289 primary local authorities (municipalities; ”communes”)– roads, schools, welfare…

• 21 counties (”secondary communes”)– health services, public transit etc

• >300 government authorities, boards, committees etc– Post, railroad etc are state-owned companies which are

gradually being deregulated and opened to competition– Tradition of greater independence from government than in

most countries


Books and booklets have been produced, and sometimes distributed free of charge, byorganizations like the Association of local authorities and the National Financial Management Authority


State level: the Swedish government

• Several attempts, but no major examples

• The ”Legal, Financial and Administrative Services Agency” a pioneer

• Mostly on local level – and some cases where existing metrics have been restructured according to four (or five) scorecard perspectives

• Encouragement from the Swedish National Financial Management Authority: book, conferences, community


The Swedish Police

• National Police Board + 21 county Police authorities

• Scorecard projects in several counties:– Voluntary; encouraged from the national level– Participation a central theme– Often very down-to-earth and concrete, starting on

operative level– No coherence and still after several years no unifying

project. But local scorecard activities persist


A Finnish state example

• Third stage of development program for the management of the Road, railroad and maritime administration

• Proposes BSC-like model

• Indicators: 1) describe current situation, 2) monitor development

• Used in connection with budgetary planning. Measures to be reported in March and November each year.

• Ministry of communication to develop method for tracking the situation continuously for all transportation in Finland, beginning in 2001


County level: Jönköping one of the leadersDepartment of internal medicine, Högland hospital


Hospitals in the Stockholm region

”4 P”:

• Patients

• ”Personal” = employees

• ”Pengar” = money

• Processes

Patients

Money

ProcessesEmployees


Aiming for virtuous circles

Patients

Money

ProcessesEmployees

Will attract contracts from purchasing authorities

Willattract

competent staff


Finnish public servants to be measured with BSC

• Decision in 2000 to develop a model based on ”useful and valid multidimensional (BSC) systems for evaluating and informing about the results of local government activities, to support strategic activities and personnel leadership”.

Factors to take into account:– Service effectiveness

(available, adapted to needs)– Service quality– Customer satisfaction– Productivity– Profitability– Agility of service processes– Employee ability


Local government level: BSC in Swedish local authorities

• At least 30 (of 289) have more extensive projects

• About half of these only for city government use

• Three or four are implementing complete ’balanced steering’

• Schools and welfare are the most popular areas for scorecards


Helsingborg - 1

• Two years of education and tests

• Project organization with:– Steering group with political representatives

(members of city government)– Project team consisting of 14 project leaders. These

answer for their areas, but grouped in new constellations (eg, environment+construction+ technology)

• Scorecards on (at least) three levels, but only some metrics are aggregable

• ”Without digitization scorecards will die”

• Participation, dialogues – cf. Helsingør (”DW but no process), but yet they collaborate…


Helsingborg - 2

• ”By describing activities from several perspectives knowledge about the whole increases and deepens. It becomes easier to carry on a dialogue about activities, to prioritize, follow up and evaluate. Balanced steering creates a learning process, where the emphasis is on the future and on development.”

• ”All activity areas shall develop balanced scorecards, the contents of which shall be of a general nature and form the basis for comparisons within and between different units and activities over time, where possible.

The scorecards shall be accessible for citizens, employees and other interested parties within accepted ethical norms.

They shall be easy to understand and clear for different constituencies so that each and every one without specific pre-knowledge shall understand their contents. The information in the scorecards shall in a simple explanatory way be possible to trace to their source, in order to achieve optimal credibility.”


• Began with seminars in the committees for welfare, education etc.

• Don’t go too fast – important to have many involved

• Not much was entirely new. Some were concerned that BSC would duplicate existing quality management projects

• Important to include contractors who carry out the actual activities

• Balance handbooks: Who measures? How often? How are measures organized and presented?

• Politicians first informed, than involved

Helsingborg - 3


Balanced SteeringBalanced Steering

Scorecard proposals - 2002-03-15Scorecard proposals - 2002-03-15Content:Content:

* Vision and activity idea / area of activity.

* Four perspectives: Economy/Customer/Process/Future

* Three indicators per perspective

* Explanation: [ CSF-goal-how-indicator ]

* Balance handbook: [ CSF-Indicators-aim-method- responsibility-execution-frequency-perspective]

Subgoal 1.Subgoal 1.


Ex. Project organization Balanced Steering

Political steering group•County council representatives* Project leadership (empl)

PROJECT TEAM* Project leader* Subroject leaders

EDUCATION

TECHNOLOGY

WELFARE

CULTURE

DEVELOPMENTRESOURCE GROUP* Finance.* Personnel.* IT

SUBPROJECTS


Ekonomi / Finans Kommuninvånare / Brukare

Process / Arbetssätt Framtid / Utveckling

Balanserat styrkort - Insatser för äldre

Framgångsfaktorer:Använda ändliga resurser effektivt

Indikatorer: Värde: Mål:1. Utfall / budget 102 % 100 %1.1 Prisutveckling utöver budget 0,0 % 0 %1.2 Volymutveckling utöver budget 0,6 % 0 %

Framgångsfaktorer:1. Rättssäkerhet2. Respektfullt bemötande3. Delta i den offentliga debatten

Indikatorer: Värde:1. Andel nöjda kunder -1.1 Antal inlämnade besvär till Länsrätten -1.2 Antal bifall i Länsrätten 0 2. Antal klagomål avseende bemötande 47

Framgångsfaktorer:1. Aktiva medborgare2. Möjliggöra kvarboende i närområdet

Indikatorer: Värde:1. Antal medborgarprojekt 22. Andel av befolkningen över 65 år i särskilda boendeformer 5,6 %2.1 Andel av bef över 65 år med insatser i ord boende 13,9% 2.2 Indikator kopplad till kvarboendeprojektet -

Framgångsfaktorer:1. Uppföljning av att beslut genomförs2. Rätt kvalitet3. God tillgänglighet4. Attitydförändring

Indikatorer: Värde: 1. Andel inkomna handlingsplaner 9,4 % 2 Andel inkomna kvalitetsplaner 0 %3. Telefoniuppföljning -

Helsingborg kännetecknas av hög tillgänglighet.

Bostadsområden, närservice, kollektivtrafik, vägar och gator är anpassade för att alla enkelt ska kunna

ta sig fram i staden. Även de som har begränsad rörlighet kan delta i samhällslivet.

I Helsingborg tar varje invånare ansvar för sig själv. Var och en planerar för sin egen livssituation - och sin egen ålderdom. Målet är god hälsa och

eget boende på egna villkor, så länge som möjligt.

Vården och omsorgen i Helsingborg kan erbjuda flera alternativ. Man arbetar inte minst förebyggande, för att underlätta ett självständigt liv i eget boende. Alla kan

förlita sig på att få omvårdnad när behovet finns och på att få inflytande över

vårdens utformning.


Many Danish local authorities use BSC

• One example: Århus, with 7000 employes (400 managers)

• ”It’s also a matter of image – to show that old-age care practices modern management.”

• The cornerstone is a set of values like dialogue, responsibility, trust and commitment.

• Four perspectives: Political, Economic, Environmental, and Employee

• 2001 goals focus on user satisfaction, complaints, employee absenteeism and contact time with users. Quarterly measures, to be publicized and benchmarked against peers and other towns like Copenhagen, Odense and Ålborg.

• Precise and operational measures are essential, and that they are presented in a ”manager-friendly” way. All employees need knowledge about ideological values and targets.


A Norwegian example: 2001 BSC prize to Stavanger

• Four perspectives: Users, Processes, Employees, Financial

• Surveys of citizens and employees, eg:– Childcare twice a year– Old age homes– Culture surveys among employees

• Budget 2002 and business plan 2002-5 use the same structure. IT integrated with other systems. Well received


Summary of experiences - 1

• Everyone stresses dialogues and participation

• Lots of support from the employees – sometimes more difficult to convince the politicians. (Are clarity and logic antithetic to politics?)

• Many reformulate the four perspectives, but most stick rather close to the original ones. Some change their order, eg:

Citizens

Finances

Processes Renewal


Summary of experiences - 2

• The four perspectives can also be made to parallel those of a normal business, but adapted to the non-profit character of the public sector:

• In this way, the scorecard will help in deciding:– How extensive and expensive activities are justified– To prioritize between users– Boost morale by showing how employees contribute to society.

For all of these, dialogues are essential.

Owner

Renewal

Citizens Process


Current concerns in managing the Swedish public sector

• Those managing activities must be able to describe what they want

• Tasks should be more stable

• Need to find good ways to achieve involvement from employees, which is necessary

• Responsibility and authority should match

• Although money may be short, that should not lead to short-sightedness

All of these make many believe that BSC is a timely idea!


Ideas for scorecard implementation and use


How it is done

A format for discussing expectations and achievements, and creating trust and motivation

• Start with interviews and documents - to know where we are

• Seminar with management team:– Strategic aims and critical success factors– The logic, ”the story of our success”

• Breaking down the scorecards to lower levels

• Concurrently, start developing metrics

• Consolidate with business plan

• Gradually: create IT support structure


ManagementControl Systems


IT Support andProcedures


LearningOrganization


StrategyDevelopment

StrategyDevelopment

A scorecard process as a virtuous circle








StrategyDevelopment

StrategyDevelopment

Breaking the circle


KappAhl as the industry’sleading service company

KappAhl as the industry’sleading service company

FinanceFinance CustomerCustomer EmployeesEmployees Processefficiency

Processefficiency

Develop-ment

Develop-ment

Increasedperformance

per square metre

Increasedperformance

per square metre

Loyal andsatisfied

customers

Loyal andsatisfied

customers

Selling andsatisfied

employees

Selling andsatisfied

employeesGoal-orientedorganization

Goal-orientedorganization GrowthGrowth

Area of focus

Strategic goals

Critical successfactors

Measures

Smart-looking and goodvalue for up-to-date people

Smart-looking and goodvalue for up-to-date peopleBusiness idea

Vision


Focus area:CustomerFocus area:Customer

Action plan for one focus area

(excerpts)Strategic aim:More loyal and satisfied customersCritical Success factors:1. Expression in shop2. Active salespeople in every shop3. Visitors in shopMeasures:1. Customer per visit2. Winning the company contest (customer contacts)3. Number of visitors per year

Strategic aim:More loyal and satisfied customersCritical Success factors:1. Expression in shop2. Active salespeople in every shop3. Visitors in shopMeasures:1. Customer per visit2. Winning the company contest (customer contacts)3. Number of visitors per year

Action plan:

Action Responsible Deadline Done

1. Simulate shopping round by second visit in shop• Design checklist together with shop personnel• Introduce way of working• Use digital camera to convey examples

2. Establish expectations• Ring all shop managers• Push for the competition in weekly newsletter

3. Joint VIP activity twice a year• Perform evaluation• Test”campaign z” in 5 shops

Coach

NN

Coach

MarchMarch-JuneMarch

April

AprilOctober


The logic of a scorecard: a real estate company

Financial/Owners

Customers

Processes

Development

Value growth

Corporateimage

Propertyportfolio

Outsourcedday-to-dayoperations

Admin. &IT support

BuyMerge

Sell

Customersatisfaction

The rightcustomers

ITutilizationMarket

positioning

Propertymanagement

Partnerdevelopment

Current profits+

Perspective(focus)


Developmentfocus

Processfocus

Trustees’focus

Academic quality

Academic quality

Satisfied studentsSatisfied students

Customerfocus

Economic performance

Economic performanceExaminationExamination

University’s standing in

society

University’s standing in

society

New ways of working

New ways of working

New systems, new

technology

New systems, new

technology

New competence, new partners

New competence, new partners

Assisting students find work; alumni activities

Assisting students find work; alumni activitiesCompetence

and contacts

Environment scanning,positioning, planning… Carrying out

educationIdentity andimage

Attract studentsand partners

Create and maintain content

Repertoire and routines

Linking education, research, and community

Strategy map for a graduate school within a university – initial draft


Leadership(10%)

Leadership(10%)

People Mana- gement (9%)

People Mana- gement (9%)

Policy andStrategy (8%)

Policy andStrategy (8%)

Resources(9%)

Resources(9%)

Processes(14%)

Processes(14%)

PeopleSatisfaction (9%)

PeopleSatisfaction (9%)

Customer Satisfaction (20%)

Customer Satisfaction (20%)

Impact onSociety (6%)

Impact onSociety (6%)

BusinessResults (15%)

BusinessResults (15%)

Source: Adapted and reprinted with permission from EFQM ”Self-assement Guidelines,” European Foundation for Quality Management (1998)

The measurement model of EFQM


Implementing scorecards

Measures in scorecards need to be…1 relevant, and logically coherent2 accepted and practical3 available and accessible 4 perceived as important and actionable5 useful for learning

To achieve this, you need: to build initial scorecards right cost-efficient systems and software for measuring and reporting controls and responsibilities that signal that scorecards are important


“Measures”

• Compact descriptions of observations on something, summarized in numbers or in words:– its attributes, or change during some time period– its performance (potential or actual)– using general measurement units, or a shared language– absolute, or relative to standards– scales may be nominal, ordinal, ratio– should not be confused with evaluation, although it’s built into some

measures– often part of a model of causation.

• So: it’s important to consider how measures will be used - who’s telling whom?

• Aggregation of measurements: not always needed, but it is obviously useful if we can avoid too many different, and know how they relate!


Scorecard projects in practice

• Take time and effort, and sometimes stop at management team level.

• Because of this, commitment and perseverance are necessary.

• If done right, create strong commitment among employees – who understand and get involved with the drivers of long-term performance!

• Start by identifying dialogues where scorecards will be useful

• If there are many users, well-designed IT support will be needed. But it’s the way scorecards are used that will determine their success.

• Difference between US and (North-)European approach?– US companies require specific metrics, and stress aggregation– Swedish companies encourage but do not require specific formatsEconometric models vs. language for strategic conversations?


Conclusions

• A simple and elegant idea: a format to discuss any human activity?

• Supports most kinds of strategic and operative discussions

• Useful in practice, but success depends on how it is done

• Reflects the growing role of immaterial assets, and the increasing dependence on employees who share a vision

• Scorecards are essentially communication tools. They can be adapted to the different dialogues which are needed in modern organizations. This means that scorecard projects should be carefully tailored to the perceived needs.


A more detailed look…


Financial (Owners’) perspective

• Financial consequences of actions already taken

• (Other “final deliverables” requested by owners)

• Growth (turnover and mix)

• Revenues and return on capital

• Costs and efficiency

• Risk and yield


Customer perspective

• How do we look to our customers?

• Which customers do we want?

• Market share, awareness, and image

• Customer satisfaction and complaints

• Customer attitudes and retention

• Prospecting

• Customer profitability

• Structure (age, geography, gender, income)


Internal process perspective

• Value chain– Primary and secondary processes

Lead-time, availability, efficiency, quality Scope, competencies, skills

• Information processes– Documentation, data bases, intranet,

e-business systems… Utilisation, quality

Separate employee perspective, or not?


Renewal and development perspective

• Development of:– markets, customers, and partner relations– products and new solutions– competencies and processes– technology and infrastructure

• Scanning:– environment trends and competition, demand and supply markets


A separate ‘employee’ perspective?

• Not in the original US model

• Many Swedish firms have one

• Fits with Skandia’s intellectual capital model

• Aren’t people a part of all perspectives?

+ HR and scorecards: impact on how HR are described in all scorecards? a scorecard for the HR ‘dimension’? a scorecard for the HR function/department?


Required for successful implementation: 1. Measures that are relevant and logically coherent

Increasinglynormative

Increasingaudience

Bonuscalculations

Targets

Benchmarking

Neutraldescription

Internal use only Publicized

Reports to boards etc

External reports

Rep

orts

fro

m

subs

idia

ries

and

busi

ness

in

itiat

ives

Executive remuneration

- What that means will differ depending on how you want to use your scorecards!


Required for successful implementation:2. Measures that are accepted and practical

• Can existing measures be used?

• Need for new measures:– automatic machine collection– record auditing (reusing data)– surveys– (estimates)

• Definitions and measurement procedures - how, when, by whom?

• Comparisons and benchmarking


Required for successful implementation:3. Measures that are available and accessible

• How should data be made available– Integrated into existing reports and “intranet news”?– Who’s sender and receiver– Authorization and integrity– Reporting cycle and action

• IS support


Systems and software

• Software for scorecards; measurement practices; presentation routines; any manual systems used temporarily etc

• Links to existing administrative systems

• Customized systems exist, also linked to ERP systems. A normal development path is:

1 User interface - presentation system and graphics2 Integrate with other systems - automatic data collection, data

warehouse 3 Database functionality, simulation capabilities

• Software vendors have different ”roots”:– ERP; ’Business intelligence’ (DW); ”components”

• Start simple!


Software used at Ericsson (”Cockpit communicator”)


Required for successful implementation:4. Measures that are perceived as important and actionable

• Measures as goals and commitments– link to planning– relation to other reports– possible to influence– relevance for bonuses and other reward systems

Will the scorecard change behavior?

Will scorecard control be perceived as fair (matching responsibility to action, and success to rewards)?


Linking rewards and incentives to measures

• ”Our description of the important things we do, to make it possible to discuss further improvements”, not ”their measures on us”

• Which performance should be rewarded?– own unit or higher level– reward current achievements (performance drivers?) or wait for effects (outcomes?) NB: whose is the risk?

• Weighted mix of metrics, or other method of combination?

• Bonuses should be seen as one part of rewards. Success can be celebrated in many ways...

• Remember: scorecards are tools for learning!


Required for successful implementation:5. Measures that are useful for learning

• Learning from experiments - did it work out as expected?– Learning opportunity about

causation, time lags… and surprises!

• Modify initiative, increase it, abandon…?

• Revise scorecard and measures2000 © The Concours Group. All Rights Reserved.eSC R e.sul ts W ork s hop

4

Linking the measures to portrayour business logic

Financial/Owners

Customers

Processes

Development

Value of increasedcustomer base

Marketingof service

Concept andcontent

Performanceof partners

Functioningof web-site

Customersatisfaction

Attracting newcustomers

Technologyperformance

Competences

Low-costoperation

Profits fromcurrent eBusiness

+

Perspective(focus)

Existing cust’sstart using


Controls and responsibilities

• Scorecard control needs to agree with other controls and rewards

• Control is contingent on strategy

• Responsibilities for scorecards:– Managing the activities described in a scorecard (unit management)– Designing scorecards and the processes for using them (controllers)– Measuring and making measurements accessible (IS function)– Using scorecards in planning and control (CEO)– Learning through scorecards (all)


Portfolio Management(Low synergy potential)

Corporate

Strateg

ic Managem

ent

Perfo

rman

ce

Man

agem

ent

Value-B

ased

Man

agem

ent

(Mostly other

forms of control)

Corporate strategy

Org

aniz

atio

nal l

evel

Operationallevel

BU-level

Activity Sharing(High Synergy Potential)

Dominant modes of control?(Nilsson & Olve in European Management Journal, August 2001)

Balanced scorecard in the Nordic countries - public sector experiences Dr. Nils-Göran Olve ; .

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Transcript of Balanced scorecard in the Nordic countries - public sector experiences Dr. Nils-Göran Olve ; .