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European Management Journal Vol. 23, No. 2, pp. 214227, 2005 2005 Elsevier Ltd. All rights reserved.

. Printed in Great Britain 0263-2373 $30.00 doi:10.1016/j.emj.2005.02.004

An Integrated Methodology for Putting the Balanced Scorecard into Action


ALEXANDROS PAPALEXANDRIS, Athens University of Economics and Business GEORGE IOANNOU, Athens University of Economics and Business GREGORY PRASTACOS, Athens University of Economics and Business KLAS ERIC SODERQUIST, Athens University of Economics and Business
We develop a compact and integrated methodological framework for Balanced Scorecard (BSC) synthesis and implementation. The proposed methodology capitalizes on existing knowledge, while incorporating critical issues, grounded in our research and experience, which have not been systematically considered or documented in previous work. By identifying shortcomings and critical success factors from literature and experience, the methodology aims at overcoming certain serious predicaments faced by many implementations. The methodology embodies activities related to Project Management, Change Management, Risk Management, Quality Assurance and Information Technology, areas that contribute considerably to BSC implementation success. 2005 Elsevier Ltd. All rights reserved. Keywords: Balanced scorecard, Performance management, Strategy implementation, Balanced Scorecard methodology performance metrics related to softer issues embedded in people and processes, whose strengths or weaknesses do not show up on a balance sheet (Bromwich and Bhimani, 1994). Realizing the need of an integrated management system that would incorporate both traditional quantitative and more abstract qualitative performance measures, Kaplan and Norton (1996) developed the concept of the Balanced Scorecard (BSC), which aims at providing a framework that translates strategy into action. The BSC is developed along the four well-known perspectives of Financial, Customer, Internal Business Process, and Learning and Growth Performance, which, at any point in time of measurement, characterize the current status and future potential of organisations. These perspectives foster a balance between short- and long-term objectives, between desired outcomes (lag performance measures) and the performance drivers of these outcomes (lead performance measures), and between quantitative-objective measures and qualitative-subjective measures. Through the years, the Balanced Scorecard has evolved, from the performance measurement tool originally introduced by Kaplan and Norton (1992), to a tool for implementing strategies (Kaplan and Norton, 1996) and a framework for determining the alignment of an organisations human, information and organisation capital with its strategy (Kaplan and Norton, 2004a). This shift has prompted companies to view the BSC as a strategic communication and management system, thus placing signicant

Introduction
In recent years, due to intensied competition, globalization and technology explosion, organizational learning, knowledge creation and innovation capability have emerged as the dominating factors of competitive advantage (Crossan and Berdrov, 2003; Zahra and George, 2002). As a consequence, organizations are forced to search beyond traditional nancial measures and place greater emphasis on

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weight on several implementation issues that have not previously been documented in the literature. Kaplan and Norton provide signicant insight into the application potential of the Balanced Scorecard for private and public sector companies and give numerous design and implementation examples from a range of industries. However, little attention is paid to different critical supporting factors such as change management, project management, IT infrastructure development, quality assurance and risk management that, from our experience, are critical for the successful implementation of a Balanced Scorecard. Furthermore, the methodological approaches in the numerous case studies of BSC implementation projects vary signicantly in the sequence, content and number of implementation steps and phases, and are applicable to particular companies and market segments rather than attempting to provide generalised knowledge. For example Ahn (2001) uses a six phase approach to implement a BSC; Brewer (2002) proposes a four step Value Dynamics Framework for translating strategy into measures; Letza (1996), uses a six step approach methodology for implementing the BSC; and Lohman et al. (2004) proposes a nine step approach for BSC implementation. In this paper we develop a holistic but lean methodological approach for BSC synthesis and implementation, which capitalises on the work of Kaplan and Norton and on the knowledge already documented in similar implementations from different countries, macro and micro conditions, industries and company sizes (e.g. Ahn, 2001; Brewer, 2002; Ioannou et al., 2002; Letza, 1996; Lohman et al., 2004; Papalexandris et al., 2004; Speckbacher et al., 2003), while incorporating critical issues that have not previously been considered systematically. In this way we attempt to generalise new and previous ndings so that the principles presented in this paper can be applied universally. Finally, shortcomings and critical success factors from similar implementations and methodologies are identied in order to propose a methodology that can maximize the benets and capitalise on the identied critical success factors of

BSC implementation, while overcoming certain serious predicaments like budget and time overruns, resistance to change, inefcient or misleading decision making information etc., faced by many implementations. The remainder of the paper is organized as follows: Section two presents the proposed methodological approach. Section three analytically outlines the proposed phases and the activities performed in each phase. Section four discusses particular issues concerning the use of the methodology and details on the managerial implications that this BSC approach offers. Finally, in section ve we present the concluding remarks.

The Proposed Methodological Approach


The proposed methodological approach for preparing, designing, implementing and rolling out the Balanced Scorecard is a results-oriented methodology, focusing on short distinct phases with manageable outcomes. It is developed along two main axes, as shown in Figure 1. The horizontal axis (project phases) represents the chronological succession of the project activities and comprises six distinct project phases. The vertical axis (activity groups) comprises the different sets of activities (with two main activity groups core and supporting activities), which are dened by the different skill sets/knowledge required to undertake a given activity. This novel approach of using activity groups will help companies identify the different skills required to complete each activity group. It also distinguishes the core BSC activities which account for fundamental building blocks of the BSC and which are project independent, from the support activities, which generally vary according to the complexity, time and budget of the project. Thus, the categorization along two axes demonstrates the vertical, cross-functional tasks that must be performed within each phase by people with different skill sets. Furthermore, this categorization provides strong inter-functional coordination which is seen to be positively

Project Phases

Phase (I)
Prepare

Phase (II)
Understand

Phase (III)
Identify

Phase (IV)
Select

Phase (V)
Operationalize

Phase (VI)
Implement

Activity Groups

Core Activities (e.g. Clarify vision, Identify strategic objectives, select measures)

Supporting Activities (e.g. Change mgt, QA, process and project mgt, IT)

Figure 1 BSC Project Implementation Approach

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correlated with achieving the desired project outcomes (Matta and Ashkenas, 2003). The phases that have been selected aim at encompassing groups of activities, to a degree of detail that will incorporate all the value-added information whilst not compromising the generalization that we attempt to offer. There is no interdependence between the proposed sequential phases, thus the results of the previous phases are not reconsidered/ altered within the next phase. To further increase the independence between phases, it is proposed to end each phase with a deliverable report and gain commitment on this deliverable by the management committee of the project. Below we discuss the phases and activity groups of the proposed methodology.

people and technology), which must be considered during implementation. The Support Activity group aims at identifying all these additional/supporting activities that have a large impact on the organisation and should be considered during the whole projects lifecycle. The support activity group also species the different competencies needed to undertake each activity, thus contributing to dening the different skill sets required by the members of the BSC implementation project team. The support activities involve: (a) Change Management. As the introduction of a Balanced Scorecard is equal to the introduction of a new performance measurement system and a new performance management approach, it comprises important changes in organisation, management and systems. Change efforts, however, often result in failure (Strebel, 1996). In particular, we have encountered numerous instances where the introduction of a BSC has met resistance, especially from middle managers, since the BSC is a management tool that makes organisational performance transparent to the whole organization. Also, the fact that the BSC requires frequent maintenance and constant monitoring creates a decisive need for employee buy-in. Seen as a change effort, the BSC implementation should holistically take into account strategy, structure, process and HRM levers for implementing change initiatives (Scott-Morton, 1991; Prastacos et al., 2002). The aim is to minimize resistance to change by ensuring that people understand the need for change, are properly motivated to change (e.g. formulation of incentive programs) and participate in the process of designing and implementing the new performance management system (Neely et al., 1996). Furthermore, these activities deal with the development and management of knowledge relative to the BSC concept in the organization. (b) Risk Management & Quality Assurance. Identication of project risks and the need to effectively manage them is strongly emphasised in the project management literature (Williams, 1995). However, even though risk management approaches have been found to be positively correlated with meeting time and budget goals, few projects in general integrate specic risk management practices (Raz et al., 2002). The proposed tasks related to risk management comprise a two-stage approach, namely risk assessment and risk control. Risk assessment should be done in the beginning of the BSC implementation project and is concerned with identifying possible risks and uncertainties, analysing and prioritizing these risks, and planning for contingency and mitigation actions. Risk control is a continuous activity, which involves measuring and controlling the progress of the project in
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Activity Groups
The seeming simplicity of the Balanced Scorecard concept makes people underestimate the difculties of putting it in place (Olve et al., 2004). However, the process of introducing a BSC in an organization is a challenging endeavour that constitutes a signicant change initiative. The proposed BSC methodology introduces the concept of activity groups in order to account for all these levers that constitute to a large degree the success or failure of a BSC implementation. The two activity groups used also cluster the main activities performed in each of the methodologys phases while demonstrating the most important areas of concern, which must be considered throughout the BSC project. The Core Activity group is concerned with all main strategy related activities that must be performed in order to design, implement and deploy a BSC. They start from the analysis of the vision and strategy of the company, encompass the identication and linkage of the strategic objectives in a strategy map, cover the selection of the measures and extend up to the development of the targets and the strategic initiatives. These core activities relate to the building blocks of the BSC, and therefore have been extensively analysed in the literature, both by Kaplan and Norton and other researchers. Thus, only a brief description of these activities is provided, placing the focus on the more critical implementation factors which have been seen to arise/emanate from other BSC implementations. However, dealing with the strategy aspect of a BSC project and thus undergoing the core activities will not ensure the success of the project, since, as mentioned above, there are other components/levers that constitute an organization (structure, processes,
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order to locate risks before they become problems, and ne-tune or implement the mitigation and contingency actions. Risks associated with BSC projects include frequent and uncontrolled changes to the building blocks of a BSC (strategic objectives, measures, etc.), poor time and cost estimates, poor communication and tensions between the project team (especially in designing the strategy map and establishing the targets for the measures), project inertia and changes in the companys strategy during BSC implementation. Quality assurance (QA) is concerned with the tness (efciency and effectiveness) of the BSC solution to meet the needs of the users. For this reason a process should be implemented for reviewing, performing necessary changes/enhancements and approving the work done by the BSC project team. Also, a special QA team, which will be responsible for ensuring the quality of the project, should be composed. (c) Information Technology. Due to the data-intensive nature of BSC implementations, companies engaging in a BSC project should also prepare to implement a BSC Information Technology (IT) solution, which can range from customizable large software vendor BSC solutions to simple off-the-shelf applications. However, IT should not only be viewed as a means for automating low value-added activities, but as a strategic enabler to efciently use the BSC and as a mechanism which enhances coordination and control abilities throughout the rm (Grant, 2002). For this reason, it is imperative that the IT planning begins simultaneously with the BSC project initiation so that the budget, time and process aspects can be correctly evaluated. In this context, the IT activities proposed by this methodology relate to specic tasks for the assessment of existing technologies, the detailed denition of technology requirements, the evaluation-selection-procurement-customisation of vendor solutions, the interfacing to existing systems, and the testing of the nal system. (d) Project and Process Management. The implementation of a BSC project requires the involvement and management of employees from different departments, thus, project management is one of the key activities that must be performed to ensure timely, accurate and within budget implementations. Even though the introduction of a BSC is a relatively small project, several cases have been recorded where BSC projects have deviated signicantly from the budgeted time and cost. The majority of the time delays were the result of poor project planning and diverging agendas among project team members, while the excess costs mainly originated from the implementation of the data-mining technology required to gather and calculate the BSC performance measures. The tasks performed in terms of project and process manageEuropean Management Journal Vol. 23, No. 2, pp. 214227, April 2005

ment draw upon Frames (2002) model for scheduling, budgeting and resource allocation and deal with the initiating, planning, executing, controlling and closing of the project. These tasks focus on assessing the business requirements, managing the overall project effort, planning the timing of the project activities and resolving problems that may appear during the implementation. Furthermore, with the introduction of a BSC, certain existing processes must be altered and others incorporated in the performance management processes of the organisation. Thus, there is a need to identify and assess current performance measurement processes and also to redesign/ne-tune these processes according to the needs that will arise from the introduction of the new management system.

Description of the Phases


Phase I (Prepare for the Project) v v v v v v Plan and initiate the project Gain commitment Assess change readiness Establish QA mechanisms Select the project team Establish communication plan.

The rst step in order to assure the success of any project is the establishment of a project vision, the identication of the scope and budget, and the drafting of a detailed project plan including critical milestones and alternative contingency scenarios (see Figure 3). Decisions concerning such issues should be taken jointly, and committed to by the project management committee and the steering committee of the company. Another issue of utmost importance is resistance to change. The BSC is a management system that is founded on transparency, thereby shedding light on the performance of different departments. Therefore, BSC implementation has been seen to result in managers fear of losing control and power and is also often met with resistance to change from employees. In order to minimize resistance to change, it is essential to establish senior managements commitment, motivate key managers to gain ownership of the BSC deployment process (e.g. by providing incentives) and develop communication mechanisms with the employees so that they can track and understand the progress and the inherent benets of the project. This action is crucial, since it has been empirically proven that the active involvement of employees in the design of a performance measurement system will lead to a signicantly larger performance increase, compared to an introduction of an identical system whereby employees do not participate (tell-and-sell) in the deployment
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process (Kleingeld et al., 2004). For this reason, at the beginning of the BSC project, interviews must be scheduled and questionnaires could be distributed to selected employees from all hierarchical levels, in order to assess change readiness, establish buy-in for the imperative to change and clarify the role of each employee along with the personal and corporate level benets from the implementation of this strategic management tool. Also, within this phase, the project team that will be responsible for the design and successful implementation of the BSC should be assembled. The typical structure of the project team involves a steering committee, a team of experts (Financial, HR and IT experts), a Quality Assurance team and the main project team. We have established that the project team should encompass no more than eight employees of various hierarchical levels. Every effort must be made in assembling a diverse project team possessing motivation and team skills. We should also note that constructive arguments have been recognized when both employees supporting the BSC initiative and others more sceptical of this endeavour are included in the project team. The introduction of a BSC is a labour-intensive endeavour, which will require the BSC project team to commit between 50% and 90% of their work-time for the duration of the project. During this time, a lot of new knowledge will be formed and numerous decisions will have to be made, thus there is a need for efcient communication and a knowledge transfer plan which will foster swift decision making and transfer of knowledge to the whole organization.

ture, and identify the gaps between the As-Is and the To-Be situation so that appropriate action plans can be taken. It is also important to develop contingency plans, which will encompass alternative action plans for cases where certain obstacles appear during the implementation (e.g., deviations from time and budget, resistance to change, conicts within the project team, shifts in strategy during BSC implementation, data inefciencies) so as to ensure the value added of the project and meet the timeframe and budget constraints. After a better understanding of the special needs of the organisation has been achieved, the rst task for designing the BSC is the assessment and understanding of the mission, the vision and the overall strategy of the organisation. In order to establish a thorough understanding of the above, semi-structured interviews should be arranged with the senior managers involved in developing and formulating the organisations strategy. The questions should be aimed at: Where are we now, where do we want to go, and how are we going to get there? Following this rst assessment, workshops with the project team should be arranged, where the strategy of the organisation will be broken down into a handful of areas of focus, that is, two to ve strategic themes. These strategic themes will be based on the overall corporate strategy (stability, growth or turnaround) and could involve issues on revenue growth, increase of productivity, cost reductions, market or product development, diversication, horizontal or vertical integration etc. This phase will be the rst instance where the project team will have to collaborate. Thus, considerable input will be provided concerning resistance to change from employees, and the change management approach may have to be modied accordingly.

Phase II (Understand the Vision and the Strategy) v v v v v Assess external and internal environment Develop a contingency plan Clarify the organisations vision and mission Identify the strategic directions Develop a change management plan.

Phase III (Identify the Strategic Priorities and Objectives) v v v Identify strategic objectives Design Strategy Map Present ndings to stakeholders and gain approval.

In this phase, the project team must rst gain a better understanding of the external and internal environment of the organization, which will aid in clarifying the strategic direction that is being pursued. For the analysis of the forces that drive the companys strategy and for a better understanding of the strengths and weaknesses that drive the organizations strategic priorities, the project team can gather information from a Porter ve forces analysis model and a SWOT analysis. Alternatively, if this information is not available, the project team may have to conduct a series of interviews with certain key department managers. In this step, the project team should also determine and assess the business processes used for performance management and the IT infrastruc218

In this phase, the objective is to reach consensus on the strategic goals of the organization and prepare the strategy map. The principle of keeping it simple should guide the identication of strategic objectives that should commence from the nancial and proceed to performance drivers in the other perspectives, whilst ensuring a cause and effect relation between them. The selection of the 1015 most appropriate strategic objectives can be achieved in a project team workshop by ranking each strategic objective on four criteria:
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(a) Strategic signicance. The central and departing point for a BSC project is the organizations strategy. In assessing the strategic signicance of a particular objective, team members will be called to evaluate the importance of the particular strategic objective in achieving the overall organizational strategy. (b) Improvement potential. The strategic objectives with the highest potential for improvement should be favoured, since they will also accommodate the establishment of feasible strategic initiatives for improvement, which will be selected in phase V of the project. (c) Feasibility of implementation/applicability. The objectives that are selected to constitute the strategy map will later (Phase IV and V) have to be quantied and measured. Thus objectives that may present serious measurement complications should be omitted. (d) Correlation to other strategic objectives. The strategy map is founded on the positive correlations (cause and effect relations) between the individual strategic objectives in different perspectives, so that the simultaneous attainment of all the objectives will lead to improved performance. Thus, the project team should rank higher the objectives with the strongest potential correlation. The nal selection of strategic objectives along with their interdependencies will lead to the design of a strategy map, which consists of a graphical representation of the strategic objectives categorized according to the theme and perspective they represent, along with the cause and effect links between business performance drivers and outcomes in the different performance perspectives. The design of the strategy map is perhaps the most critical endeavour in the whole project (Niven, 2002), since the selection of only a few strategic objectives is likely to lead to disagreements between the project team members from different departments who may have different goals and agendas. Also the subjectivity in establishing the correlation between possible strategic objectives may lead to controversy. There are various techniques to avoid these clashes. From our experience the most effective is voting and selecting the highest-ranking objectives, combined with the strong project leadership. Finally, due to the signicance of this phase, the management committee must accept and be committed to the results of the strategy mapping, and thereupon, the ndings of this phase must also be presented and explained to selected stakeholders.

v v

Appoint a performance measurement owner Identify gaps between existing and desired business processes and IT infrastructure.

The strategy map designed in the previous phase is the starting point for selecting the BSC performance measures, which will be used in order to quantify the attainment of the strategic objectives. A practical approach to selecting the performance measures is to rst create a pool of possible measures that represent each strategic objective to a satisfactory degree. These measures can originate from three possible sources: (a) existing performance measures which are familiar and commonly understood by employees, and which also integrate existing performance measurement efforts, (b) case studies of similar implementations,1 which have proved to be a valuable source of information in many projects, and (c) new measures proposed by the project team, using methods for creative thinking and idea generation such as brainstorming, alternatives from xed points, etc. A typical BSC is composed of a balanced blend of measures. These measures are split into two categories: Performance drivers, which are leading indicators of performance; and performance outcomes which represent lagging measures of performance. Since it is harder to identify measures for the leading performance perspectives (Learning and Growth and Internal Process perspectives), Kaplan and Norton (2004b) propose using certain clusters that group similar value creating processes in an organization. The clusters for the internal process perspective are operations management, customer management, innovation and regulatory & social, and for the learning and growth perspective they are human capital, information capital, organization capital (Table 1). After the measures are gathered, the project team selects those that are thought to be most suitable for the organisation (in most cases one or two measures for each strategic objective). A method that we have found to minimize tensions between the project team is the ranking of the performance measures according to the following indicative list of criteria: (a) Correlation of the measure with the corresponding strategic objective, (b) Applicability of this measure in the particular organisation, (c) Communication potential, (d) Ease and feasibility of measurement, (e) Improvement potential of the particular measure, etc. The process of selecting the measures should result in 1525 measures, balanced between the four BSC perspectives. However, it has proved more effective to incorporate more measures in the leading perspectives than in the lagging (nancial and customer)
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Phase IV (Select Performance Measures) v v Gather, rank and select performance measures Establish way of measurement

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Table 1

Sample Measures and Measure Clusters Possible Measures Revenue growth, costs, margins, protability, cash ow, Return on Investment (ROI), Return on Equity (ROE), Economic Value Added (EVA) Customer satisfaction, retention, acquisition, protability, market share, customer referrals, cross-selling, price relative to competition, brand recognition

Perspectives Financial Perspective Customer Perspective Internal Process Perspective Operations Management

Quality, lead-time, inventory, productivity, efciency, non-value adding activities, risk minimisation, alternative distribution channels Customer Management Customer complaints, complaint resolution, hours with customer, products per customer, segmentation Innovation Number of new products, R&D, patents, new opportunities, product and service diversication Regulatory & Social Employee safety and health, environment, regulatory employee acquisition issues, donations, charities Learning and Growth Perspective Human Capital Employee turnover, acquisition, satisfaction, average workforce age, education, training Information Capital Knowledge sharing, IT infrastructure development, system response rate, down time Organizational Capital Corporate values adoption, culture development, teamwork, leadership efciency, organizational alignment

perspectives, since the latter are usually already closely monitored and managed by most companies. After the measures have been selected, a mathematical formula must be applied for each measure. Since measurement consumes valuable company resources, measures need to be simple whilst incorporating all value adding information for the organisation. Several companies have found it helpful to normalize the measures, whereby instead of reviewing the actual gures of the selected performance measures, the values are deduced to a scale of ve or ten numbers (Lohman et al., 2004). After the means of measuring performance have been established, a performance measure owner (what Olve et al. (2004), call a BSC ambassador) must also be decided for each measure. The decisive factor in selecting a performance measure owner is to choose an employee who holds a high position in the hierarchical level, has control over this measure, can track its performance and who endorses both the selected measure and the BSC initiative. In this phase, nally, the project team analyses the gaps between the existing and the to-be performance management processes and proposes changes. This step is critical since the BSC measures will need to be calculated and managed frequently (typically every 13 months) and the strategy map along with the strategic objectives, the correlations and the strategic initiatives will have to be reconsidered (typically every 6 months to 1 year). Thus, establishing processes will contribute towards the utilization and maintenance of the BSC. In this context, a gap analysis for the Information Technology requirements must also be prepared, which must also consider the availability, reliability and security of the organizations IT infrastructure.
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Phase V (Operationalize the Project) v v v v v Set stretch targets for the measures Determine measurement frequency Develop strategic initiatives Establish budget Redesign/Fine-tune performance management processes.

Numerous companies implementing a BSC choose to omit this phase (Speckbacher et al., 2003). However, by the processes comprised here, the BSC evolves from being a tool that simply measures, to being a tool that manages strategy (Epstein and Manzoni, 1998). Many scholars analysing BSC implementations separate the rst four activities inherent in this phase (e.g., Olve et al., 2003; Ahn, 2001; Butler et al., 1997). We argue, however, that there exists a strong interdependence between them and thus they should not be split into different phases. Target setting is one of the key activities required to making strategy work (Niven, 2002), as it involves setting challenging targets for each of the measures previously dened (see Figure 2). In order to achieve commitment and amplify the likelihood of attaining targets, the latter should be ascertained by the performance measure owners as depicted in the previous phase (Levinson, 2003). Assuming theory Y applies (McGregor, 1960) whereby employees are motivated by rewards and incentives associated with goals they helped determine, the goal setting procedure is expected to lead to increased motivation and effort towards improving the selected measures and achieving the goals. The aim should be to set stretch targets for the leading performance measures and less stringent goals for the lagging measures (e.g. nancial performance), since short-term results may have to be to some extent compromised in order to achieve the desired long term performance of the
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Strategic Theme: Offer High Quality Services to Targeted Customers


Strategic Goal Strategic Goal Measure Measure New Customers Total Customers Measure owner Measure owner Mr. Smith Mr. Smith (Sales & (Sales & Marketing) Marketing) Target Target Increase by 10% Increase by 10% for retail for retail Increase by 5% Increase by 5% for corporate for corporate Measurement Measurement Freq. Freq. Quarterly Quarterly (beginning (beginning January 20th)) January 20th Initiatives Initiatives Intensify Intensify marketing marketing Reactivate Reactivate dormant customer dormant customer accounts accounts Budget Budget 200,000 for 200,000 for 200,000 retail customers retail customers 100,000 for 100,000 for corporate corporate customers customers

Add and retain Add and retain customers customers .. ..

Figure 2 Example of a Strategic Goal Breakdown

organisation (Ittner and Larcker, 1998; Banker et al., 2000). However, when setting targets, the company should bear in mind that Outstanding non-nancial performance is not always benecial (Ittner and Larcker, 2003, p.92). This is because the effort and resources that may be needed to improve a non-nancial performance attribute may be greater than the benet from the particular improvement (e.g., the cost of having 100% satised customers or having no quality errors in the manufactured products). Due to lack of experience with this type of target setting process, it is advisable to proceed by trialand-error where practice combined with experience ultimately will lead to a nal selection of targets. In this context, and in order to minimise resistance to change, management should avoid linking compensation to target achievement at this stage. A new compensation scheme should be implemented after the BSC has been in use for some time and once the stakeholders have recognized its applicability and inherent benets. This phase also involves the determination of the frequency of measurement for each measure. It is common for nancial measures to be collected quarterly, semi-annually or annually depending to their inherent periodicity and data availability constraints. The remaining measures, provided that they are not affected by seasonality and other factors that would make the results misleading, could be examined at shorter time-intervals (every 1 to 3 months). The next activity involves the development of strategic initiatives, which are groups of actions that the company is going to undertake in order to achieve the targets that it has set (Figure 2). Before proposing initiatives to achieve the targets, the project team should examine existing strategic initiatives and those proposed during the project interviews. After existing initiatives have been analysed and adjusted, we have found it useful to use questionnaires or suggestion boxes in order to involve the whole organization in the development of new strategic initiatives. The initiatives should range from quick hits, which are initiatives that can be performed in short timeframes and require a minor budget, to long-term strategic initiatives having implementation time frames of 23 years. Finally, in order to rate these
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strategic initiatives, a practical ranking model is given by the Wells Fargo Online Financial Services BSC implementation (Kaplan and Tempest, 1998) whereby initiatives are ranked by the project team according to the following criteria: (a) Strategic Importance, (b) Cost, (c) NPV, (d) Implementation Period, (e) Interdependencies and (f) Risk/Complexity to Implement. The next step involves the planning of nancial and resource requirements (budgeting). The preparation of the budget can be supported by a business case that will provide economic justication for the investment. The budgeting process must be associated with the strategic objectives and communicated to the whole organization in order to achieve alignment of employee efforts. Starting from the total budget (nancial and human resources) that can be appointed to the BSC initiatives and keeping a time horizon of no more than 3 years, the budget must be allocated to both the budget intensive initiatives (e.g. R&D, marketing campaigns, data warehousing projects, process reengineering) and to the less budget intensive initiatives (e.g. cultural, teamwork, alignment issues). It should be noted that the targets and the initiatives themselves may also have to be ne-tuned according to the available nancial and resource budget, hence the two-way arrows of Figure 2 and the incorporation of all the above mentioned activities (targets, frequency, initiatives, budget) in a single phase. This phase marks the end of the BSC design, thus the organisation must also redesign the performance management related processes in order to bridge the gaps identied in the previous phase. Also the basic requirements of the IT solution that is going to support the BSC have to be determined (requirements analysis), and the change impact for the organisation must also be roughly established so that a training program can be formulated.

Phase VI (Implement and Rollout the System) v Select and customise the IT solution v Roll-out the project v Prepare periodic re-evaluation plan
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v Plan other BSC related projects v Transfer knowledge. Many BSC software solutions exist, ranging from BSC modules of ERP systems, to standalone BSC applications offering only a representative medium for performance measures and targets. Given that the majority of organizations experience serious problems in developing the information systems needed to support Balanced Scorecards (Towers Perrin, 1996), it is imperative to select the most efcient and effective software solution for each organization. The front-end of the IT solution should enable easy viewing and monitoring of performance measures, while the back-end should have the possibility of collating all information and provide analysis possibilities for detecting patterns between the various performance measures. The main concern when choosing an appropriate IT solution is the balance between the effectiveness of the software and the time it takes to implement. Managers should seek to minimize the time it takes to initiate implementation of the Balanced Scorecard in order to reduce the risk of inertia and resistance to change. In this phase, the project team should also develop a plan for the periodic re-evaluation of the appropriateness of the strategic objectives, the performance measures and their assumed links (cause and effect relations between presumed driving factors and expected results). A small-scale re-evaluation and ne-tuning can be performed quarterly or semiannually, with a large-scale re-evaluation taking place yearly or whenever there is a signicant shift in the organisations strategy. It has been established that companies alter approximately a third of the selected measures within the rst year of BSC implementation, mainly due to the BSC learning process. From the second year, approximately a fourth of the measures change every year mainly due to shifts in strategy, environmental factors and new measurement needs. Another issue for consideration in this phase is the planning of complementary BSC related projects that will help in the integration of the BSC with a variety of organisation operations. The projects that are most frequently undertaken involve: v Rollout of the measures to all hierarchical levels of strategy (business unit, functional/departmental level). Formulation of an employee performance appraisal system and a compensation plan based on the BSC. Implementation of complex data warehousing techniques to automate the calculation of the performance measures and the presentation of company performance. Execution of training seminars concerning the use and requirements of the BSC project.

Finally, in this phase, the BSC implementation team must assure the transfer of knowledge to the whole organisation and should start using the newly implemented BSC within 60 days (Kaplan and Norton, 1996), in order to avoid the danger of inertia which has caused many good projects to remain on the shelf. In this context, selected stakeholders who will be involved in the BSC use and maintenance should be presented with an overview of the BSC implementation, as they will be called upon to fully grasp and undertake the actions needed to support the BSC (e.g. measurement, target setting, development of strategic initiatives, re-evaluation of performance measures etc).

Integrating and Linking the Six Phases


The tasks described above have been presented in chronological succession based on the phase during which they must be performed. However, one of the enhancements of the particular BSC methodology is that these tasks also correspond to certain activity groups which may require different skill-sets in order to be implemented. Thus, Figure 3 summarizes the grouping of the BSC implementation tasks both per activity group and per phase, so as to foster for better planning and allocation of the different human resources that will take part in the implementation of the BSC project.

Discussion and Managerial Implications


A key issue in many BSC implementations is the number and type of measurement perspectives that are going to be used. Contrary to Kaplan and Nortons model, many researchers propose using additional or different perspectives which are thought to be more informative or more representative in certain market segments. For example Maisel (1992) used a human resource perspective instead of the Learning and Growth one. Olve et al. (2003) presented case studies where companies have added Human Resources as a fth perspective and provided examples of enterprises that have considered other perspectives such as the environment. Furthermore, some scholars argue that customers should not be the sole consideration when it comes to external stakeholders (Atkinson et al., 1997; Maltz et al., 2003), as in many cases suppliers, partners, unions, etc. play crucial roles for organisational performance. However, our experience with BSC implementations has led us to use the original four-perspective BSC model originally developed by Kaplan and Norton. The rationale behind keeping the model unchanged lies mostly in its simplicity and compactness, which
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Project Phases

Phase (I)
Prepare

Phase (II)
Understand

Phase (III)
Identify

Phase (IV)
Select

Phase (V)
Operationalize

Phase (VI)
Implement

Core Activities

Assess the vision of the project Determine the scope of the project

Assess ext. and int. environment Clarify vision and mission Identify strategic directions

Identify strategic objectives

Gather, rank and Select KPIs Establish way of measurement

Set stretch targets Determine measurement freq. Develop initiatives

Roll-out the project

Design strategy map

Appoint measure owner

Establish budget

Develop periodic re-evaluation plan

Change Management

Change Imperative / Readiness Establish Communications Gain commitment

Assess resistance to change

Present findings, gain approval

Train end users Assess change impact Plan other related projects

Develop change leadership / incentives plan

Transfer Knowledge, Communicate and gain approval from management committee

Supporting Activities

QA & Risk Management

Establish QA Mechanisms Develop and fine-tune the contingency plan

Identify & research best practices

Develop Business Case Identify, assess and mitigate business risks

Manage risk, Assure quality

IT

Assess ICT infrastructure

Prepare gap analysis

Select, procure, design, construct and test the IT solution

Project & Process Management

Develop the scope Plan the project Select project team Initiate the project

Identify existing performance management processes

Identify gaps in the performance management processes

Propose changes to the performance management processes

Transfer and close the project Redesign performance management processes

Monitor plan and manage the Project

Figure 3 Breakdown of Phases and Activities Inherent in the BSC Methodology

accounts for its communication potential. The selected measures that relate to human resources and environmental factors can be incorporated into both the Learning and Growth and Internal Process perspectives and the ones that relate to suppliers and any other stakeholder can be incorporated in the Customer and Financial perspectives. Based on an extensive literature research, consulting experience, and applied eld-work in the areas of performance measurement/management, and several documented BSC eld implementations in the manufacturing and nancial sectors (e.g. Ioannou et al., 2002; Papalexandris et al., 2004; Godener and Soderquist, 2004), we have identied certain shortcomings associated with the ways in which Balanced Scorecard projects have been designed, managed and implemented. These include overruns in the time
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and budget, resistance to change from employees, lack of management and employee commitment, unexpected obstacles resulting in partial implementation or termination of the project, and issues related to the information system needed to monitor and control the progress towards the achievement of the targets. Other issues of high importance, which we have found to be underestimated in practice and supercially dealt with in the literature are the difculty in designing the strategy map, the issue of reaching consensus on the various performance measures, the ascertainment of the strategic initiatives, the agreement of targets, and the determination of the strategy budget. The objective of the paper was to address these issues and propose practical advice on how to tackle them through the core and supporting activities suggested in the methodological framework.
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Our framework and methodology has proven efcient in implementation projects conducted in the nancial and manufacturing sectors. More precisely the organizations have achieved: v Better performance management. This was attained by understanding what creates value in every organization, aligning business processes with the BSC and providing the technological platform that enables swifter decisionmaking. Reduced resistance to change and enhanced team cooperation. Especially in large organizations where resistance to change is a major constraining factor, an integrated change management approach consistent with the actions detailed in this paper, was seen to have a positive effect on employees perceptions about the BSC project. Furthermore, since the methodology (particularly phases II to IV) is based on a collective development of the BSC, improvements in cross department communication and collaboration were achieved. Respect of time and budget constraints. Maintaining the time and budget plans is achieved by using a methodology composed of distinct phases, and by applying a strict project management approach. Employee buy-in and transfer of knowledge. This was achieved by maintaining an effective communication plan with the employees (e.g. via a company knowledge sharing portal, newsletters, meetings) and by concentrating the maneffort in phases II, III and IV, whereby achieving the transfer of knowledge and ownership to the whole organisation in phases V and VI.

The implementation of a BSC project is a relatively short endeavour, with a timeline typically ranging between four (Kaplan and Norton, 1996) and six months, the latter accounting for engaging in the supporting activities. Since the project is labour-intensive and a long implementation process increases the possibility of a swing in the organisations strategy during the course of the project, every effort should be deployed in keeping this compressed timeframe from project initiation to roll-out (notwithstanding the development of a full-blown IT infrastructure). Based on eld experience using the proposed methodology, we have established that the amount of man-effort required to implement a BSC varies signicantly according to the size and the complexity of the project. However, the pattern of the man-effort intensity is seen to exhibit similar characteristics in almost all implementations (see Figure 4). More specically, the implementation man-effort is observed to intensify and weaken consistently in most projects, depending on the phase, and corresponding activity group. For the purposes of effectively planning and managing the different resources required to implement a BSC project, Figure 4 details the man-effort intensity, divided according to the different phases and skill sets (activity groups) of the project. The project & process management man-effort is mostly concentrated in the middle of the project, since most of the effort of coordination, communication and business analysis is performed in phases II through V of the project. Quality assurance & Risk management requires a steady man-effort throughout the project since issues that could endanger the project and the deliverable

Figure 4 The Man-effort Per Phase and Activity Category

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quality are recorded throughout the project, and all necessary corrective actions are performed. On the other hand, the Information Technology activity showed high man-effort intensity in phases V and VI where the technology infrastructure had to be selected, customized and implemented so as to cover the organisations needs. Finally, the Change management man-effort is concentrated in the beginning of the project when signicant effort is required to achieve the commitment of all relevant parties and at the end of the project where there was the issue of knowledge transfer to the organisations employees as well as the issue of selling the project to the stakeholders.

References
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Conclusions
Turner (1992) describes a project as: an endeavour in which human, material and nancial resources are organised in a novel way, to undertake a unique scope of work of given specication, within constraints of cost and time, so as to achieve unitary, benecial change, through the delivery of quantied and qualitative objectives. Under these principles, we have developed an integrated methodological approach for BSC synthesis and implementation. Our proposed methodological approach is based on the framework of Kaplan and Norton, while providing a detailed documented course of action and a set of procedures, which encompass industry best practice combined with experience of BSC and other performance measurement system implementations. The methodology also embodies critical aspects such as Project Management, Change Management, Risk Management, Quality Assurance and Information Technology, areas that contribute considerably to the success of the BSC project but which are mostly overlooked in other BSC research. Thus, our methodology aims to provide a comprehensive framework, which will cover the important aspects of a Balanced Scorecard synthesis and hence can serve as a guideline for implementations. Even though every attempt is made in generalising the concepts presented in this paper, company specic factors, such as size, strategy, resources etc., requiring deviations from the proposed methodology, will always need to be considered while implementing a BSC. Furthermore, even though most organizations seem to agree that a BSC implementation will be benecial, one must not overlook the fact that its effectiveness and benet is highly dependent on the content of the implementation process that is used. Note
1. C.f., e.g., http://harvardbusinessonline.hbsp.harvard.edu, http://www.balancedscorecard.org/

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Prastacos, G.P., Soderquist, K., Spanos, Y. and Wassenhove, L.V. (2002) An integrated framework for managing change in the new competitive landscape. European Management Journal 20(1), 5571. Raz, T., Shenhar, A.J. and Dvir, D. (2002) Risk management, project success, and technological uncertainty. R&D Management 32(2), 101109. Scott-Morton, M. (1991) The Corporation of the 1990s: Information Technology and Organizational Transformation. Oxford University Press, New York. Speckbacher, G., Bischof, J. and Pfeiffer, T. (2003) A descriptive analysis on the implementation of Balanced Scorecards in German-speaking countries. Management Accounting Research 14, 361387. Strebel, P. (1996) Why do employees resist change? Harvard Business Review 17(3), 8692. Towers Perrin (1996) Inside the Balanced Scorecard. Compuscan Report January, 15. Turner, J.R. (1992) The Handbook of Project Based Management: Improving Processes for Achieving Your Strategic Objectives. McGraw-Hill, New York. Williams, T.M. (1995) A classied bibliography of recent research relating to project risk management. European Journal of Operational Research 85, 18 38. Zahra, S.A. and George, G. (2002) Absorptive capacity: a review, reconceptualization, and extension. Academy of Management Review 27, 185203.

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ALEXANDROS PAPALEXANDRIS, Athens University of Economics and Business, Management Sciences Laboratory, Evelpidon 47A & Lefkados, 113, 62, Athens, Greece, E-mail: alexp@ aueb.gr Alexandros Papalexandris is a Doctoral Candidate at the Athens University of Economics and Business with research interests in performance measurement using state of the art tools and methods.

GREGORY P. PRASTACOS, Athens University of Economics and Business, Management Sciences Laboratory, Evelpidon 47A & Lefkados, 113, 62, Athens, Greece, E-mail: gpp@aueb.gr Gregory P. Prastacos is a Professor of Management Science and Head of the Management Sciences Laboratory at the Athens University of Economics and Business. His professional interests lie in the areas of management science and IT, and their use in business transformation in the information society. KLAS ERIC SODERQUIST, Athens University of Economics and Business, Management Sciences Laboratory, Evelpidon 47A & Lefkados, 113, 62, Athens, Greece, E-mail: soderq@aueb.gr Klas Eric Soderquist is Assistant Professor at the Athens University of Economics and Business. Leadership through guiding visions and performance measures, organizational learning and knowledge management in corporate transformation are central themes in his research.

GEORGE IOANNOU, Athens University of Economics and Business, Management Sciences Laboratory, Evelpidon 47A & Lefkados, 113, 62, Athens, Greece, E-mail: ioannou@aueb.gr George Ioannou is Associate Professor at the Athens University of Economics and Business. His research merges operational methods with IT for business problem-solving.

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