Presented by Robert S. Kaplan, Marvin Bower, Professor of Leadership Development at Harvard Business School, and Gaelle Lamotte, Vice President of Balanced Scorecard Collaborative.
Many organizations have already embarked on quality initiatives such as Six Sigma, Total Quality Management, the Baldrige National Quality Program, and the European Foundation Quality Management (EFQM) Model of Excellence. Everyone wonders about the relationship between the Balanced Scorecard (BSC) and their existing quality control efforts and programs. Is the BSC competitive? Does it mean a replacement or a complement? Actually, the two approaches are highly compatible.
The Balanced Scorecard and quality programs share several important features that make them both appear similar.
Both rely heavily on measures to promote dialogue about performance improvement, strive to act as catalysts for change, and rely on continuous feedback and learning. In addition, both require that management be deeply dedicated to improving organizational performance.
However, both kinds of systems are oriented towards improving performance from different perspectives; they have different origins and seek to achieve different specific benefits.
The BSC and the quality programs are symbiotic. The BSC should not be viewed as a more designed program for employees to follow their companies' existing quality initiatives. The BSC improves quality control and improvement programs; It gives them a certain focus and clearly links them to the strategic results of clients and financials.
In turn, quality programs offer systematic discipline to improve the critical business process that increases customer value propositions and increases productivity.
The EFQM and Baldrige models
For reasons of practicality, we will focus on the EFQM and Baldrige models, two of the most widely used and documented quality approaches.
The EFQM Model was presented in 1988 to support the European Quality Award process. However, in the same way as the Malcom Baldrige Quality Award, which was also introduced in 1988, the EFQM Model soon came to be implemented in thousands of organizations as an internal diagnostic tool.
Figure 1 shows the criteria used in the EFQM and Baldrige models. Figure 2 shows the Baldrige criteria framework, and Figure 3 presents the relationships between the criteria in the EFQM model.
Note that, as in the BSC, both models have links between their criteria.
Organizations are classified into different categories by identifying their strengths, weaknesses, and opportunities for improvement, and comparing their overall performance in each area with the publicly available benchmarks that constitute "good practice". For example, for the Policy and Strategy criterion of the EFQM model, an organization would evaluate its strategic planning process: Is it formally established? Is it checked regularly? Is it implemented at different levels?
Comparable questions for the Baldrige category about strategic planning include:
What is the organization's strategic planning process? How do you ensure that the most important factors (customer, competitive environment, suppliers, etc.) are addressed in planning? What is the schedule to carry out the most strategic objectives? How does the organization ensure that its strategic objectives match the needs of key stakeholders? How do you develop and deploy your action plans? What are your most important human resource plans and key performance indicators to track progress?
Both models divide their higher criteria level into sub-criteria: 32 for EFQM and 18 for Baldrige
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Indeed, the EFQM and Baldrige approaches offer generic checklists to assess the quality of the processes used by the organization to formulate strategies. However, none establishes or evaluates the links based on the results of the different sub-criteria or of the different
subcategories for customer and financial performance.
Both models use some weighting in business results, Baldrige more than EFQM (45% vs. 15%), probably because of the well-known financial distress experienced by some Baldrige award winners.
The four subcategories of Baldrige's Business Results - customer-oriented results, financial and market results, human resources results, and organizational effectiveness results - bear no resemblance to the four BSC perspectives.
This is probably not accidental. Curt Reimann, the first director of the Baldrige National Quality Program, attended different presentations about the BSC during the early 1990s. Soon after, Baldrige's categories were modified to include more external performance indicators; business results were also of great importance.
Furthermore, EFQM's most recent proposal called “RADAR” (which stands for: Results, Proposals, Deployment, Evaluation and Review) assesses the excellence and scope of an organization's results.
Contributions of the Balanced Scorecard beyond a Quality Program
How are organizations that are already performing correctly to benefit from a Balanced Scorecard program (according to the criteria of EFQM, Baldrige, or Six Sigma)? We have identified five main ways:
1. The BSC provides explicit causal links through Strategic Maps and cascading objectives.
The EFQM and Baldrige models attempt to describe a high level of causality between their categories. But simply drawing arrows between categories fails to correctly describe the cause and effect links of a detailed strategy map based on a properly designed Balanced Scorecard.
EFQM and Baldrige verify that a strategy process exists and is on track. But the links inherent in these approaches are implicit. On the contrary, when building a Strategic Map with the Balanced Scorecard, the organization's strategy must be explicit. The process of creating a Strategic Map - with its associated objectives, measures, goals and initiatives - puts the Senior Executive Team in charge of an intensive process that generates consensus, clarity, and commitment to the strategy. The hypothesis about the strategy becomes explicit and testable as the information is accumulated over time and through similar organizational units.
Another benefit of building Strategic Maps with the BSC occurs when the organization's cascading goals relate to individual business units and the company's support areas.
Failures have been observed in the business units due to a measurement mismatch used by the support areas. Rather than linking their objectives and measures with the strategies of the line business units, the support areas opted for process efficiency measures by setting milestones with external organizations considered to be the best in their class. As a result, while business units struggled to achieve product leadership, support areas, focused on local process improvement, were unsuccessful in achieving significant capabilities. Quality models tend to be local, tactical, and independent. The Balanced Scorecard starts with setting strategic priorities and then identifies the process improvements necessary to support them.
As one executive warned:
The BSC provides unity and focus to our TQM efforts and also to our annual and long-term planning. We had numerous teams doing many things, but the efforts were momentary. The BSC brought everything together in a unified and systematic approach. Now, when we assign responsibilities to the different departments, we do it within a general structure.
The overall approach and relationships have evolved to closely resemble the four perspectives of the BSC:
2. The BSC sets goals for successful performance, not simply existing best practice.
EFQM and Baldrige compare the performance of internal processes with the milestones of best practices, and as a result, focus on constant improvements.
By contrast, the Balanced Scorecard definition of objectives begins with aspirations of high performance achievements in measuring client and financial results.
Companies using the Balanced Scorecard hope to become the new milestone for others.
Goals for short-term performance are determined, not by individual process milestones, but by the goals the organization must achieve in the short term to stay on the path to great achievement in the long term.
The objectives of achievement in terms of client and financial results are broken down into flexible objectives of: client satisfaction and retention, performance of internal processes, human resources and information technology capacities, and organizational alignment.
In this way, the objectives of all the measurements of the BSC are linked to obtain an exceptional performance in high level objectives.
To be sure, the disciplined approach of milestone quality programs supports BSC programs by helping organizations raise their below-standard processes to competitive levels.
3. The BSC frequently manages to identify completely new processes that are critical to achieving certain strategic objectives.
Quality models strive to improve existing organizational processes.
However, by applying the principles of the Balanced Scorecard, in particular when implementing a new strategy, completely new processes come to light in which the organization must excel.
For example, a company was trying to change from a low-cost, operational excellence strategy to a differentiated strategy of greater relationship and intimacy with customers.
A critical process for the new strategy was to work closely with certain clients in order to anticipate their future needs.
The company has never attempted such a process before.
I generally expected customers to request project quotes before responding.
In a financial services company, customer service employees had to move from being "business processors" to proactive financial planners.
With just a quality scoring model to guide them, employees could have earned high performance scores for fast, diligent, responsive, and flawless processing of customer operations.
But this soon-to-automate process was no longer critical to the new customer relationship strategy.
Instead, employees should achieve high performance in a whole new set of processes: anticipating and understanding customers' new financial needs, developing in-depth knowledge of new financial products and services, and developing the ability to customize and sell products and services tailored to individual customers.
The process of implementing a high-level strategy of the BSC managed to easily identify the critical importance of these new processes and the least emphasis to be placed on the processing of operations. Once the new and vital processes have been identified, quality programs can be implemented to improve their performance.
4. The BSC defines strategic priorities for process improvements.
Even without the strategic need to introduce new processes into the organization, companies still have to assess priorities.
Certain processes are more essential to strategic success than others.
The EFQM and Baldrige models provide a critical and comprehensive assessment of an organization's processes against best industry practice. Resources are allocated to processes that have been identified as less efficient than best practices.
However, this allocation process takes place regardless of setting strategic priorities.
Rather, the Balanced Scorecard identifies which processes should be performed at the best practice levels or above, in addition to those processes that are least crucial to the success of the strategy.
The BSC provides the guidance organizations need to reallocate their scarce labor and funding resources from non-strategic process improvements to those processes and initiatives that are most critical to implementing the strategy.
Obviously, once organizations have identified their most critical and essential processes, they can apply management principles to improve them.
For example, the EFQM and Baldrige self-assessment could highlight certain areas where processes are weaker, and if left unchanged, it would be very difficult for an organization to achieve the expected performance on its strategic measurements.
The self-assessment helps to identify the level of process investment and the time required for the Balanced Scorecard to achieve the target performance.
Reengineering: discontinuous process improvement.
Quality programs are often referred to as "continuous improvement" programs. However, in certain cases, the existing processes are so inefficient or technologically obsolete that they will not be enough to achieve the objective performance. In these cases, organizations may abandon their traditional quality management tools and instead resort to a re-engineering or discontinuous improvement program.
The Balanced Scorecard improves reengineering programs in the same way as it does quality programs. It places reengineering programs in a strategic context linked to results from high-level organizations, establishes performance objectives (often non-financial) for reengineering program outputs, and establishes priorities for cases in which processes undergoing reengineering have the greater impact on the performance of the organization.
5. The BSC integrates budgeting, resource allocation, goal setting, reporting and performance feedback functions into ongoing management processes.
Historically, the EFQM and Baldrige models evaluated and rated leadership and strategy setting as if they were independent processes.
With the Balanced Scorecard, leadership and various management processes are closely and indivisibly linked.
Strategy-focused organizations follow a comprehensive set of five management principles:
- Translate strategy into operational terms Align business units and shared services with strategy Convert strategy into each and every day's work Make strategy a continuous process Drive change through executive leadership
These five management principles comprise a comprehensive performance management system that encompasses strategy formulation, communication, and instrumentation through administrative and operational processes.
And unlike quality scoring models, the BSC does not weigh or measure whether the various critical management principles have performed well. Performance measurement is based on whether the strategy was effectively implemented and whether the organization achieved exceptional performance in the strategy's results.
EFQM's new RADAR scoring model now recognizes the importance of integration. A component examines the degree of integration of a method or process with a policy, strategy and other approaches.
So organizations are moving from using the Excellence model exclusively as a measurement tool to using it to link management processes, in the same way that the Balanced Scorecard has always done.
Convergence and symbiosis
We have already seen how quality processes are approaching BSC's global, integrated and results-based approach.
But a properly executed BSC offers a special focus on quality programs because it gives them context, it offers them a strategic structural framework that allows a clear impact of process improvements on the results of important organizations.
Quality measurements, especially the results of quality programs, abound in the Strategic Maps and Balanced Scorecards.
In the learning and growth perspective, for example, the scorecards reflect the alignment of employees, their state of mind and their abilities.
From the perspective of internal processes, quality measurements obviously appear in the category of operations excellence, but they can also appear in the categories of innovation, customer administration, and in the internal regulatory and society categories.
From a customer perspective, quality metrics can appear in the value proposition and customer satisfaction metrics, which in turn drive customer retention, increase profit margin per customer, and market share. and the accounts.
For their part, quality programs offer a depth of instrumentation so that critical organizational processes can be improved and aligned with high-level strategic objectives (BSC).
We believe that each model adds a useful dimension to the other. When used together, a management team can take advantage of the insights and aspects of each approach.
Both approaches foster dialogue on performance, underpinned by management processes that link strategy to operations and process quality. Both models occupy their place of importance in organizations that want to achieve significant performance improvements.
J. Champy and M. Hammer, Reengineering the Corporation: A Manifesto for Business Revolution (New York: HarperBusiness, 1993).
