Gaining Strategic Alignment: Making Scorecards Work

BY WILLIAM FONVIELLE AND L A W R E N C E P. C A R R , P H . D .

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Soichiro Honda, founder of the Honda Motor Company, described The Sacred Obligations of Senior Leadership this way: Vision: What will we be? Goals: What four or five key things must we do to get there? Alignment: Translate the work of each person into an alignment with the goals.
His third point may well be the most important. Alignment is a necessary condition for organizational effectiveness. By alignment we mean having a common agreement about goals and means. On the largest scale, alignment is the achievement of goal congruency where all parts and functions of an organizations value chain work toward the same purpose. In its ideal form, all members of the organization can align their personal values and objectives with those of the firm. When alignment is strong, people feel a clear and shared sense of purpose, inspiration and energy run high, and both individual and team effectiveness increase. Alignment is strong at many Internet and start-up companies where everyone is focused on a few critical business goals. These firms are typified by a strong sense of dedication and intense personal engagement on the part of nearly all involved. Commitment is reflected in long workdays and personal sacrifices willingly given for the good of the firm. The challenge is to continue the alignment as the firm grows in size and complexity. In this article, we will show how a firms measurement system, when linked to its strategy, can be used as an organizational alignment tool. We use examples of companies that we worked with (or that participated in our field research) as well as some from the literature. We demonstrate how a custom measurement system (where measures are linked to key success factors) can be critical in building a sense of shared values and a common strategic direction among all parts and people in an organization. Alignment is essential for successful implementation of strategy. We offer techniques and caveats for implementing and using balanced measurement systems by managers to gain strategic alignment.
THE DANGERS
OF

MISALIGNMENT

Dr. Bob Frost, who directs the consulting firm Measurement International, acknowledges the challenges of the alignment process. For a measurement system to become the way we do business around here, Frost says, three things have to happen: x People have to know about it, x People have to care about it, x People have to be able to act on it. When alignment within an organization is weak, people wind up working at cross purposes, and actions become less effective. Often, functional or individual objectives take precedence over the needs of the larger organization or the customer. Morale and productivity diminish over time, and the organization becomes more vulnerable to competitors and market forces. Misalignment can take several forms: x A group believes its members are aligned, but, in fact, individuals have different goals or share goals but have unstated disagreements about how those goals should be reached. x Warring camps exist within the organization, ensuring that overall commitment to any chosen strategy is weak. x Active opposition does not exist, but many group members are unconvinced of the need for, or the likely efficacy of, the proposed action. x People dont know what the goals of the organization are. To the last point, a survey of 293 organizations in the United Kingdom showed that in poorly performing organizations, two-thirds of employees did not have a good understanding of overall organization goals. Even in well-performing organizations, fully a third did not understand the organizations goals.1

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STRATEGIC Figure 1: Top-Down Colina Insurance (a diversified GOALS German insurance company and Strategic Alignment SBU* part of the AXA group) had to conMEASURES * Strategic Business Unit quer misalignment when it created STRATEGIC a Customer Care Center (CCC) to GOALS provide better customer service and to UNIT stem increasing customer defections. MEASURES The concept was that the CCC would proSTRATEGIC vide customers with a single telephone numGOALS ber to handle questions and problems for all its TEAM insurance products. Conceived as a 24/7 operation, MEASURES the system had as its goal to handle 90% of all cusSTRATEGIC tomer problems on the first call. GOALS The directors of the various insurance groups INDIVIDUAL (health, auto, life, property, and casualty) were called MEASURES on to fund this new central service department, but they did not uniformly agree with the concept of the operation. Concerns were raised about costs, producthe Six Sigma tools of quality, which GE describes tivity issues, the CCC staffs capabilities, the existas a highly disciplined process that helps us focus ing information technology, and the systems on developing and delivering near-perfect products potential to resolve customers problems. The CCC and services. Moreover, infrastructure systems such manager knew that his department by itself was not as training, career development, and rewards and the solution to stemming customer defections, and compensation all support the central message. he was concerned that this would be the measure Likewise, DuPont enjoys one of the best safety used to judge his performance. records in industry largely because its entire global A balanced scorecard was developed to resolve workforce is aligned around the issue. At DuPont, the CCC managers measurement concerns and to safety is the strategic imperative. assure the directors on an ongoing basis that the C A S C A D I N G S T R AT E G Y A N D S C O R E C A R D S CCC was operating effectively and efficiently. The In practice, alignment is not only a matter of indimeasures chosen reflected the strategic intent of the viduals agreeing on goals and means; it also refers to CCC and incorporated the various concerns of the the need for business processes and functions to raldirectors. The CCC manager was comfortable with ly their actions around the flagpole of the organizathe new measures and was able to use the scorecard tions strategy. The strategic alignment process must to manage and motivate his department. The fundstart at the top level of the organization and casing group managers were comfortable, as the set of cade down, unifying direction for units and funcagreed-upon measures gave them the confidence tions, teams, and ultimately individuals (Figure 1). that the CCC would perform as designed. Tying performance measures to strategic goals is a For obvious reasons, new programs and initiatives critical step. Without measures, many organizations run a very strong risk of eventual failure when alignfail in communicating and cascading their strategy. ment is lacking. Even when they produce quick As Texas Instruments Emery Powell once said, A results, such initiatives typically fall into disuse over strategy without metrics is just a wish, and metrics time. The history of the quality movement offers that are not aligned with strategy are a waste of many examples. Without constant and persistent time. urging on the part of management, the commitment Often, strategic plans and goals are filed away to quality typically deteriorates, even in firms where with all the supporting data, assumptions, and logic quality provides an obvious competitive advantage. used to create the strategy. To avoid this sorry state Consistently successful firms, however, manage to of affairs, managers need to ingrain the strategy in create and maintain alignment around this or other the fabric of the organization so that individual strategic dimensions. At GE, for example, everyone beliefs and actions are steered in the appropriate in the organization is continuously indoctrinated in direction. the critical importance of quality and is educated in

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The General Motors European Strategy Board sought to improve organization-wide alignment and innovation through the creation of a balanced scorecard in 1998. Rather than leave each area of the company to its own devices, every scorecard for each of the eight business units and 12 separate functions in different countries was developed according to a common process and format. In addition, each business unit and function had to set consistent prioritized strategic objectives that aligned with GMEs corporate scorecard. In addition, a common scorecard template has been devised and cascaded for all 25 national sales companies in GME, although they select their own objectives according to their business circumstances. Thus, the Boards strategic direction cascades to and guides the manufacturing, sales, marketing, people, process, and systems capability of each. At Mobil Oil Corporation in the United States, the balanced scorecard is beginning to serve as a model for the personal scorecard. One of Mobils major groups is doing the personal scorecard with notable success, reports Edward T. Lewis, Jr., Americas M&R business specialist in the Marketing and Refining Division. There is a clear benefit to getting people to understand how their behavior drives results in the business unit, he adds. The next step is to get more leverage and benefit from each individual to see exactly what they need to accomplish to drive exceptional business unit results. The personal scorecard concept might be the answer.
MEASURING PERFORMANCE

The notion of alignment is bound tightly to the notion of a performance measurement system. It can serve as an excellent tool to cascade a firms strategy. Measurements signal to all levels what is important in the organization. This importance is manifested in at least three ways: x Performance measures should be aligned with the organizations strategy. x The scorecard itself is a powerful mechanism for aligning the organization with the strategy. x Executives must be aligned around the performance measurement system or scorecard before it can be effective or fully institutionalized. Employees, too, ultimately must become aligned around the system so that it becomes part of the way we work. In addition, the presence of measures greatly influences behavior as testified to by the old axiom,

You get what you measure. Thus, an effective performance management system must have as its foundation a strong performance measurement system. That performance measurement systems and scorecards should directly reflect the organizations strategy has become a fundamental tenet of performance measurement theory. This approach helps management: x Translate vision into operational and quantifiable measurements. x Reduce a strategy to its critical success factors. x Identify and align the action steps needed to accomplish strategic goals. x Establish a clear link between strategy and functional tasks. x Compare actual performance to planned performance so that corrective actions can be taken. x Analyze and manage strategy. Serono, a $1.4 billion Swiss biotech firm, sees the value of linking strategy and performance. Over the past five years, Serono successfully shifted production from conventional methods to biotechnology. Since assuming the reins of leadership from his father in 1995, Ernesto Bertarelli has been shaping and developing his management team as well as forging the biotechnology vision. The company has transformed itself from dependency on a single product family, infertility drugs, to offering multiple products. Serono is currently building the infrastructure to support a worldwide marketing effort. Bertarelli boldly and publicly proclaimed a fivepoint strategic intent: 1. As a provider of specialty pharmaceuticals, we will focus on niche markets where we can contribute with innovative products. 2. An entrepreneurial and pioneering spirit will be fostered throughout the firm. 3. We will strive to be the partner of choice for patients, physicians, and payers in our chosen fields. 4. We will expand R&D efforts worldwide to create a global presence. 5. We will attract, develop, and train the best talent in the pharmaceutical and biotechnology industries. Bertarelli developed a balanced scorecard system to monitor the companys performance against each item of the strategic intent. He then set about building a scorecard for the entire organization as an aligning mechanism. His purpose was to maintain the firms strategic focus by keeping the five elements of strategy in front of departments and peo-

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ple. Bertarelli, moreover, believes that the scorecard will help people to coordinate their efforts.
O R G A N I Z AT I O N A L A L I G N M E N T

Particularly at the level of teams and individuals, companies often try to improve organizational alignment with organizational behavior or organizational development interventions. Experience suggests, however, that many, or most, such interventions fail to achieve their goals. Employees may interpret these programs as the flavor of the month or may regard such initiatives as time-wasting intrusions. Often they are tied to themes such as waste reduction or productivity improvement. These are goals that many employees may regard as insufficiently strategic, a threat to job security, or requiring more work without obvious reward. In response to these failures, more and more senior managers are attempting to create alignment by rallying employees behind a single big idea, such as customer satisfaction, shareholder value, or economic value added. The problem with these approaches is that although alignment may be created around the goal, the organization is typically misaligned around the means to reach the goal. Getting functions or business units aligned with the overall strategy is also often problematic. Many organizations are made up of fiefdoms, unwilling to share power, resources, information, or ideas in the interests of the greater good. Trapped in their own stovepipes, business units or functions may find it difficult to see how actions at their level can lead to greater achievement for the total organization. Fortunately, top managers have at their disposal the most powerful tool yet devised for creating alignment and managing performance. Strategic performance management concerns alignment, innovation, and translating our vision and strategy into action by using the balanced scorecard process, explains Martin Shotbolt, leader of General Motors Europes Information Systems & Services Change Management Team. This U.K.-based unit has become an internal Center of Excellence for GM, leading the cascading of scorecard developments that started in mid-1998. We use this process to expand the meaning of our objectives organization-wide and put measures against them so that people understand what the business is trying to achieve, Shotbolt says. This level of alignment has been a huge challenge getting our people facing in the same direction,

bringing a stronger focus to their collective performance, and introducing clarity for what they do. A robust performance measurement system linked to strategy can provide the basis for aligning an organization around both goals and means. Such a system should be able to: x Identify the strategic goals and actions around which alignment is needed. x Align customer, employee, operational, and process measures with strategy. x Serve as a means to communicate the strategy to the organization. x Establish accountability and ownership for results throughout the organization. x Link strategic objectives to long-term targets and annual budgets. x Translate strategy into departmental, team, and individual goals. x Link compensation and rewards to performance against strategy. Roberto Fuentes, a senior manager in the Finishes Division of DuPont Mexico, observed that the very act of creating scorecards for the overall Finishes business and for each of the three strategic business units within the Finishes Division was a powerful experience. The exercise clarified strategy, both overall and for each business, and clearly identified the strategic links and synergies across the division. Achieving alignment between what human resources (HR) does and what corporate strategy requires has been a critical issue at Universal Music Group (UMG), created after a late-1998 merger between two music companies, Universal and PolyGram. The strength of the global enterprise stems from combining international economies of scale with a local entrepreneurial market focus. It does so in more than 40 countries with record label brands that include MCA, Decca, Island, DGG, and Mercury. Within the corporation, a central HR team in New York determines HR strategy to guide managers and HR practitioners across the business, using an internal consultancy model. Our success factor for global HR is to avoid having a rigid, bureaucratic structure, which allows internal consultancy on HR solutions for business managers to work, providing that HR practitioners understand their companys business strategy in the first place, explains Jonathan Smilansky, executive vice president of HR at UMG. By using this approach, they are far better placed to help others

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achieve strategic goals. In effect, he says, the issue for HR practitioners is strategic alignment. To enable these linkages between HR and business strategy, practitioners use a framework called the HR Strategy Contribution Matrix, which is being adopted at UMG. There are three steps: x Working with the strategic planning function, HR identifies the three to five critical high-level strategies that support the long-term business vision. x Decisions are taken on two or three key HR contributions for each strategic priority that may yield 10 to 15 opportunities for interventions. x Three to five strategic HR goals are prioritized from these contributions that will have significant impact.
BUILDING COMMITMENT

TOOLS

AND

TECHNIQUES

As with any other major organization alignment, the successful development, implementation, and institutionalization of a scorecard or similar performance measurement system requires executives, and ultimately employees at all levels, to be reasonably aligned and committed to it. In the absence of broad commitment, the performance measurement system is likely to totter under its own weight and eventually be widely ignored or abandoned. A group of managers in the Microelectronics Division of IBM decided to craft a balanced scorecard for their business. After considerable time and effort, the team succeeded in devising a simple scorecard that was rooted in the divisions vision and that identified critical success factors for the business strategy. The scorecard also encompassed customer and innovation measures that previously had been lacking. However, the team found it difficult to obtain top management buy-in, perhaps in part because senior managers were not involved in the scorecards creation. The team also encountered resistance in trying to deploy the scorecard to the divisions business units. In time, the initiatives champion left the organization, and the measures by and large reverted to the financial measures that previously had been in place. The challenge for companies is two-fold: first, to make sure a strategy exists and that it is appropriately communicated and understood; second, to put in place mechanisms and processes to direct and steer alignment.

Dr. Bob Frost describes two situations he frequently encounters. The first is one in which an executive group is convinced of the value of performance measures and is committed to the development of a performance measurement system. An executive group characterizes the second, more common situation, with some interest in performance measures or scorecards. The group discusses the idea and typically appoints a member or a staff person to gather more information about the concept. Often, executive enthusiasm wanes by the time the preliminary data gathering is completed. In the face of incomplete or waning commitment, the challenge is to re-energize the group. Performance Measurement Associates has defined three key steps in building commitment to a scorecard or set of performance measures. These are assessing the state of executive alignment, gaining executive commitment, and driving commitment down and across the organization.
Executive Alignment

Two questions arise when addressing the issue of executive alignment and performance measures. The first and most critical is whether the executive group is aligned around strategy. The second is whether the executive group is aligned around the need for a strategically linked performance measurement system. The Executive Group Alignment Process (EGAP), developed by Dr. William Bernstein of Bernstein Associates, is useful in addressing either question. EGAP is a consulting process for assessing and promoting alignment among senior executives around their organizations strategic plan and its implementation. The process begins with interviews and continues with surveys of team members to assess both levels of commitment to strategic goals and perception of strategy relevant ideas. These are ideas about internal organizational factors and external environmental factors that might be important for successful strategy execution. The surveys quantify individuals commitment to the strategic goals or to the new initiative, identify the conditions required for effective implementation of strategy or initiative, and measure how well executive team members work together. The results of the research conducted among team members is fed back in an initial group

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Figure 2: The Relationship of Commitment to Strategic Action STRONG COMMITMENT: HIGH ENERGY/INSPIRATION EFFECTIVE ACTION

VARIABLE COMMITMENT:

CURIOSITY/ANXIETY BOREDOM/DEFENSIVENESS

POTENTIAL FOR CHANGE INEFFECTIVE OR NO ACTION

WEAK COMMITMENT:

LOW ENERGY/DEPLETION

NO ACTION

meeting, which is designed to: x Identify areas of strong, weak, and variable commitment to strategic goals. x Rally the team around areas of strong commitment. x Explore the underlying causes of variable commitment to goals. x Assess the teams willingness to work together toward implementation. Dr. Bernstein notes that strong commitment to strategic goals can engender strong feelings or longings in people. Weak commitment to goals is associated with low energy and nonaction. See Figure 2. When commitment is strong, the team is aligned and can move forward to implementation without hesitation. When commitment is weak, the odds of successful implementation are very low. The strategic element or initiative in question should be dropped or at least shelved until the causes of the weak commitment are dealt with. Understanding the area of uncertain commitment is of central importance for leaders. The groups commitment may be uncertain because the group is split into two or more factions on a given strategic element or initiative. Or it may be uncertain because members of the group may be uninformed or undecided about the value of the strategic element and lack strong feelings either way. Making these aspects of uncertainty explicit allows groups to engage the issues actively and, ideally, to build com-

mon understanding and a new consensus.

Gaining Executive Commitment

In the absence of an existing performance measurement system, building executive commitment to the development of a scorecard or other system is inevitably the first step. As Bob Frost puts it, The scorecard initiative has to have executive support, or it will fall on its face. Tactics that frequently are used to gain this support include: x Recruiting a high-level person to serve as a champion or sponsor for the idea. x Preparing a business case that demonstrates the need for the initiative. x Providing executives with educational materials, guest speakers, or seminars and benchmarking site visits to high-performing companies. x Finding a business unit in which to conduct a demonstration pilot. One of the keys to gaining executive support is to find an effective champion or sponsor for the measurement initiative. A champion may be a senior staff person, but ideally he or she should be a member of the senior executive team. Such a person should have peer credibility, a persistent nature, and good influence skills. The preparation of a strong business case to demonstrate the value of performance measures is a persuasive technique and is useful in that it can

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focus discussion on benefits. Traditionally, a business case is couched in financial terms and includes a multiple-year estimate of a future projects costs and revenues. However, while financial returns from the possession of a better strategic focus and the availability of detailed performance feedback ultimately may be enormous, large integrating frameworks such as business scorecards are very difficult to quantify from a return-on-investment perspective. A performance measurement system is, after all, a tool to reach some other ends and not an end in itself. Such systems are best presented in terms of usability and benefits. One of the chief benefits offered by performance measurement systems is the very capability for creating organizational and individual alignment. Bama Pies, Inc. rationalizes its scorecard as a means to: x Communicate the strategic direction of the company. x Link individuals, business units, functional areas, and departments across the organization. x Focus measures on key drivers of performance to ensure the organization is working toward the same goals. Air Products and Chemicals defines its scorecard as a means to: x Build the vision into key result areas. x Show where problems are and how to change them to meet corporate goals. x Cascade the targets and measures established by the senior management team through the organization. x Obtain agreement and support for key result areas across different departments and business units. x Link results to compensation. Educating key decision makers and influencers is a necessary step in building support and alignment. If senior executives are to be aligned around the need for performance measures, they must share a common understanding of the subject. This can be accomplished in a variety of ways, including: x Distributing popular books, articles, and videos on the subject. x Hiring motivational speakers for in-house events or meetings. x Holding more or less formal in-house workshops, seminars, and presentations. x Participating in public seminars, conventions, and exhibitions.

x Taking courses at universities, colleges, and institutes. x Bringing in consultants and software vendors. x Staging benchmarking site visits to organizations noted for world-class performance measurement systems. Probably some mix of these alternative modes of education will be in order. An important consideration, however, is to select and stage educational venues so that a consistent point of view is presented. A scattershot approach might confuse people more than it will enlighten them. If, indeed, seeing is believing, then staging a pilot project to demonstrate the viability, uses, and benefits of performance measures can be a useful tactic. A pilot cannot only demonstrate value, but it can provide a ready-made and homegrown model and recipe book for others in the organization to adopt. The experience gained by pilot participants may enable them to function as consultants for the rest of the organization as the concept spreads. Moreover, a pilot can uncover issues, problems, and implementation obstacles that could possibly be corrected before performance measures are developed for the larger organization. A pilot project, then, can have numerous benefits beyond that of simply demonstrating the value of measurement systems. Gordon Masiuk succeeded in gaining executive commitment at TransCanada. Formerly an independent total quality consultant, Masiuk was a senior process and performance measurement consultant with NOVA prior to its merger in 1998 with TransCanada. With the combined companies, he took on the added role of corporate organizational and business effectiveness consultant. NOVA had used a balanced scorecard since 1993. This scorecard had been set up on a stakeholder basis, and users found it hard to link it to the companys strategy. With the merger, a new approach seemed in order. Musiak had read a description of an improved version of the balanced scorecard called the Dynamic Business Scorecard in the book Customer Centered Growth by Richard Whiteley and Diane Hessan. Following up on the idea, he discussed the concept at length with William Fonvielle, its originator. Musiak felt that the attributes of the dynamic scorecard were very attractive and completely consistent with quality precepts. Shortly after the merger, the executive leadership team (ELT) of the combined organizations began a strategic planning

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Communications
Performance Measurement Associates provides a communications checklist and a list of communications principles for its scorecard clients.
P E R F O R M A N C E M E A S U R E M E N T C O M M U N I C AT I O N S C H E C K L I S T

Build enthusiasm for and commitment to the performance measurement process. Demystify the subject of measurement. Give all employees information vital to their understanding of the performance measurement system and the business case. Ensure that relevant information is provided at a level of detail appropriate to the recipients positions and roles. Help minimize the disruptive effects of change by preventing unpleasant surprises. Provide two-way communications channels that will help employees feel their feedback and ideas are valued. Monitor the quality of the communications process.
GUIDING PRINCIPLES
OF

O R G A N I Z AT I O N A L C O M M U N I C AT I O N S

Actions speak louder than words; every management decision and action communicates powerfully. Brevity is the soul of wit. People tend to remember most things only through constant repetition. People are most likely to remember the first and last points they hearand to forget whats in between. Positioning the benefit increases acceptance of change. Communication is by definition a two-way process. Communications should never go over peoples heads, nor should they underestimate peoples intelligence. Do not communicate to the point of over-kill.

process, thus providing an opportune time to integrate measures with strategy. Musiak started using the framework of the dynamic scorecard in sessions with executives as a process picture to show how different areas linked up. Soon he began working with the Transmission Business Unit, developing the dynamic scorecard concept along with an organizational, business process, and employee-focused performance management approach dubbed the Integrated Performance Framework. The combination of these two concepts provided a holistic model for integrated planning, goal setting, performance measurement, leadership, culture, performance management, and incentive compensation. By conducting frequent workshops, meetings, and presentations, Musiak began to build support for these concepts. Eventually, he gained agreement to pilot the fundamental cascading of goals and measures from the corporate strategy down to the business unit strategy, down to a functional area (customer service), and down to individual teams. With the ongoing demonstration in process, Musiak turned his attention to selling the ELT on this big idea. I had to find someone on the ELT who could

embrace the concept, Musiak explains. I was fortunate enough to spend some time with Sarah Raiss, who is the corporate vice president of Human Resources, and also my bosss leader, he recalls. Sarah is new to the company. She has a very open mind, is receptive to new ideas, and is supportive of her people. When I took her through the IPF and Dynamic Business Scorecard concepts, she was convinced that these approaches were exactly what our New TransCanada needed. Sarah excitedly said, We need to get you in front of the ELT as soon as possible! Within a few weeks I had delivered to the ELT a 45-minute presentation of the model with sample goals and measures. It was Sarahs sponsorship and support that got me in the door. Following the presentation, I received a go-ahead to work in partnership with the HR vice presidents and their business unit presidents to develop their business unit goals and measures. Musiak found that he didnt need to write a business case in order to persuade the ELT of the soundness of his approach. I think that one reason a business case was not needed was that the DBSC and IPF intuitively make a great deal of sense, he says. They help to simplify, focus, and integrate

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the business planning process, and this integrated approach is adaptable to whatever business environment we are currently in or will be moving toward in the future.
Driving Commitment Down and Across

Once executive-level acceptance is gained, the next step is to gain support and commitment throughout the rest of the organization. Some of the same tools and methods used to align executivesespecially educational materials, in-house workshops and presentations, and successful demonstration projects may also be useful with other employees. Many employees, however, may be predisposed to dismiss measurement initiatives as yet another management fad or, more seriously, as a sinister management tactic to monitor employees. The very fact that measurement involves the gathering and manipulation of numbers may be off-putting to some. Michael Tipping, president and CEO of Panorama Business Views, stresses the need for the top of the organization to demonstrate its commitment. A performance measurement system can only succeed if the companys leadership is committed to direct the initiative throughout the organization, Tipping says. There will always be players with an interest in scuttling the processthe best way to bring these people on board is to demonstrate why and how this measurement system is useful for everyone wanting to improve performance. At Serono, the Swiss biotech firm, CEO Ernesto Bertarelli set an example by using the scorecard to measure his own performance. This action provided tangible evidence of his support for the use of the tool, thereby assuring its acceptability for other parts of the organization.
SIX STEPS
TO

Hunter suggests that alignment may be achieved through six steps: 1. Articulate the key strategic drivers of your business and the main areas of focus that will make your organization successful. 2. Define critical strategic goals that you perceive should be deployed throughout your organization. 3. Develop performance measures for each of these key goals. 4. Ensure that everyone understands the measures of both their department and their company and how they all are linked together into the strategy. 5. Link each of these measures to a formal feedback and recognition system, and communicate the results regularly. 6. Formally review the goals performance often, and develop corrective actions to ensure that they are met. Beyond the development and operation of the performance measures lie two system considerations: (1) communications and (2) rewards and recognition.
Effective Communications

ALIGNMENT

A strategy-relevant, fully functioning performance measurement system is inherently an aligning mechanism. The trick, therefore, is to make certain that the performance measurement system becomes the way we do business. The first step in this process is to make certain that the measurement system is indeed strategy relevant. David Hunter of Panorama Business Views is addressing this step when he writes that, Measurement is the key to achieving vertical alignment because it informs employees (about) the extent to which they are achieving goals in key strategic areas such as quality and customer service.

Communication is a critical component of every measurement-related activity. Without the ability to transfer information from one person to another, alignment would be improbable if not impossible. The U.S. governments 1997 benchmarking study, Serving the American Public: Best Practices in Customer-Driven Strategic Planning, reported that among the most successful companies, Effective internal communication was necessary for successful development and deployment of strategic and business plans. Internal communication was seen as the linkage between planning and practice. The entire workforce has to fully understand its role in achieving success and what is expected throughout the process. Leaderships strategy must be clearly understood at all levels of the organization.
Rewards and Recognition

No discussion of alignment is complete without a discussion of rewards and compensation. Traditionally, compensation has been regarded as a major driver of employee behavior. While a considerable body of research suggests that extrinsic rewards may be a less powerful source of motivation than intrinsic rewardssuch as the simple pleasure associated with knowing that one has done a good jobtying at least some part of compensation to strategically linked performance measures makes sound business sense.

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According to William J. Smith, director of the Northwest Compensation Consulting Practice of Watson Wyatt Worldwide, Effective scorecards provide reasonable, measurable benchmarks with which top management and other employee reward systems can be aligned, with an appropriate balance between short- and long-term perspectives, and different stakeholder influences. The U.S. governments benchmarking study reported that many benchmarking partners stated that measures are not effective without tying incentives to them. It noted that in the best companies: Performance measurement, tied to incentives and compensation, is employed at all levels of the organization, with clearly assigned and well-understood accountability for results. Most of the (benchmarked) partners linked performance evaluations and rewards to specific measures of success. This, they believed, sent a clear message as to what was important. These measures were almost always different at different levels within the organization, but each was linked to overall organizational strategies. At Mobil Oil Corporations Marketing and Refining Division, linking the organizations strategy to compensation through a balanced scorecard was an early step. Edward T. Lewis, Jr. noted that the division first needed to understand the direction the scorecard was setting, what the results were, and whether the desired results were being driven. The existing variable pay compensation program for nonexecutive employees was a merit-based pay program, similar to what a lot of companies have, Lewis explained. The division was granting annual salary increases in the range of three to six percent, regardless of whether the company was doing well or poorly. Under the new variable pay compensation program, a pot of money is available to employees that, in effect, ranges up to a maximum 30% bonus opportunity. As much as 30% of one-time annual salary opportunity bonus is tied to the scorecard measures. Tying compensation and incentive to performance measures, however, must be undertaken with care, especially at nonexecutive levels. Changes in the way that people are compensated almost always generate anxiety and in some cases may run afoul of local legal constraints or union rules. Moreover, people must feel that the system is fair and the measures are accurate. To this end, avoid penalizing or rewarding people for results they cannot influence or for observed changes in results that may be due to error or chance variation.

THE SYSTEMS POWER

Much of the power of a strategically linked performance measurement system lies in its ability to forge alignment among units, functions, and individuals. Strategic alignment is difficult to achieve, but it is critical to the successful implementation of a strategy. But before a useful performance measurement system can itself be implemented effectively, key decision makers must reach alignment around its need, form, and content. It is very clear from our experience that scorecards must be custom designed to fit the particular strategy of an organization. A clear link of measures to strategy is essential for successful scorecard implementation. Many firms have been quick to embrace scorecards but have been very disappointed with the results. We believe the root cause of this dissatisfaction is managements lack of attention in linking measures to strategy. The tendency is to follow a generic balanced scorecard recipe, which may or may not fit the strategy and key success factors of the organization. From alignment around strategic measurement, it is but a short step to performance management. General Motors Martin Shotbolt has remarked that, Overall, scorecard adoption has strengthened strategic performance management because it has helped all operating units across GME to focus on and understand how their performance and capabilities impact on business strategy. Naturally, some parts of the business are more advanced than others and, at times, we have had to tackle skepticism, Shotbolt adds. Conversely, we were surprised at the positive response most people had since, by nature, they want to contribute and help the company achieve its objectives. We must credit that and the fact that we now have an integrated set of leading indicators which drive collective performance. s William Fonvielle is CEO and president of Performance Measurement Associates, Inc. He can be reached by phone at (978) 283-5408 or e-mail at Info@performancemeasures.com. Lawrence P. Carr, Ph.D., is professor of management accounting at Babson College and can be reached at (781) 239-5138 or e-mail at Carr@Babson.edu.
1 As reported in Journal of Strategic Communication Management, Feb/Mar 99.

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