Bsc in Public Sector

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How a public sector agency re-invigorated its Balanced Scorecard

A Balanced Scorecard Case Study

November 2004

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Case Study

is 2GC case study builds upon an earlier research paper called e Design of a StrategicManagement system in a Public Sector organisation that was presented by 2GC at the FourthInternational Conference on Performance Measurement and Management, held in Edinburgh,20041.

Introduction

is case study concerns a project to design and implement a strategic performancemanagement system within a medium sized public sector enterprise. It looks at how this UKGovernment Agency found it necessary to re-design its failing strategic performancemanagement system only a year a er its introduction, and how the second attempt appears tohave been much more successful. e two approaches adopted di ff ered in both the structureof the Balanced Scorecard being designed and in the design methods used. e advantages ofone approach is demonstrated by comparing the two approaches used.

e case study describes the consequences of this work, and o ff ers insights andrecommendations concerning the application of strategic performance management methodsand systems derived from this experience.

ree distinct Generations of Balanced Scorecard design have been identied since the ideawas rst widely publicised in the early 1990s. ese Generations are described in more detailin e Development of Balanced Scorecard as a Strategic Management Tool, a 2GC ResearchPaper available from 2GC at http://www.2gc.co.uk/resources-papers.asp .

e case study enables comparison between 2 nd and 3 rd Generation Balanced Scorecardapplications in relation to their practical value in a public sector organisation. It seeks toanswer the following three questions:

How do the results of a 3 rd Generation Balanced Scorecard design process di ff er fromthose of a 2nd Generation design process?Why would a management team, that had recently attempted to design and implement astrategic management system using Balanced Scorecard, be persuaded to redesign theirBalanced Scorecard?Is the 3rd Generation Balanced Scorecard approach more applicable to a public sectororganisation?

Background

e case organisation, the Defence Storage and Distribution Agency (DSDA), is a semi-

autonomous central government agency working in the UKs defence sector. DSDAs mainactivity is the provision of key elements of logistics support to the armed forces in UK andNorth West Europe. In 2003, it had a budget of about 250 million a year and about 5,000employees, of whom over 95 % are civilians. e Agency is a functional element of theDefence Logistics Organisation (DLO) which in turn is one of the core services comprisingthe UKs military capability. However, due to its semi- autonomous Agency status, DSDAsBoard and Chief Executive are accountable for Agency performance directly to the Ministerfor Armed Forces.

2GC Case Study - How a public sector agency re-invigorated its Balanced Scorecard 2GC Limited, 2009

1 The original PMA case-study was written by William Barney, 2GC Active Management, Dr. Zoe Radnor, Professor RobertJohnston both Warwick Business School, and William Mahon, Defence Storage and Distribution Agency

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http://www.2gc.co.uk/resources-papers.asphttp://www.2gc.co.uk/resources-papers.asphttp://www.2gc.co.uk/resources-papers.asp


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The rst attempt

In January 2002, the Board of DSDA took the decision to introduce a Balanced Scorecardbased performance management system for use at management board level. e choice to useBalanced Scorecard as a framework was inuenced by two factors. First, a Balanced Scorecardbased system was already in use at the Ministry of Defence and the DLO. Second, through

benchmarking with the United States Defence Logistics Agency and in particular, the USDDC (Defence Distribution Centre), DSDA had established that a Balanced Scorecard basedsystem was also used in equivalent organisations in the USA.

Prior to starting the design project, DSDA paid for members of the project team (drawn fromits Human Resources and Corporate Plans Departments) to receive two days training inBalanced Scorecard design from an external organisation. is training focused on the designand implementation of 2 nd Generation Balanced Scorecard designs, and accordingly theteam constructed and executed a project plan to create a Balanced Scorecard of this type.

2nd Generation Balanced Scorecard designs focus on the development of a number of linkedstrategic objectives that in turn become the basis for the selection of appropriate performancemeasures and targets that are used to inform Balanced Scorecard reports made to managers.Notoriously hard to design, management engagement in the process itself is hard to obtain.

e DSDA project team, working on their rst Balanced Scorecard with just two days training(and a book) to work from, struggled to get good contributions from the management team.

e result was (as is common) a set of strategic objectives that were notable primarily for their vagueness. is vagueness was thought by the design team to be a direct result of insu fficientsenior management engagement during the design process used. ree examples of theoriginal vague objectives are:

Secure new investments

Long-term benecial partnerships

Embrace diversity

is vagueness made measure selection and target setting di fficult: since they could meanmost things to everybody, picking a specic measure was hard to justify. However, the designwas completed, and reporting against the Balanced Scorecard commenced at the October2002 DSDA board meeting, but at that point the majority of objectives had no measuresdened. e design elements that made up this Balanced Scorecard are illustrated in Figure 1overleaf.

2GC Case Study - How a public sector agency re-invigorated its Balanced Scorecard 2GC Limited, 2009 Page 3 of 13


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Figure 1 e Original DSDA Balanced Scorecard Design.

No useful clarication of the specic meaning of these objectives for DSDA was subsequentlyobtained from the management team, which made improvements to the design di fficult. ByJanuary 2003 only seven out of nineteen objectives could be reported on some nine monthsa er the start of the initiative. e absence of hard data at management meetingsundermined the utility of the device, and so little time was allocated to discussion of theBalanced Scorecard at management meetings. Frustration mounted with the tool itself andthe lack of tangible benets arising from the activity associated with it. In January 2003, use ofthe system had been put on hold.

Nevertheless, DSDAs underlying need for better performance management information andtools remained, and the project team and Corporate Plans department who had driven theinitial work were still sure that the Balanced Scorecard could benet DSDA if only it could bemade to work. Following an internal review and a change in the Board membership, theBoard commissioned a new project in March 2003 to overhaul the existing mechanism with a view to improving the utility of the system, re-establish its credibility, and incorporate recentorganisation changes to the management of DSDA. A part of this process was the decision toengage an external party (2GC Active Management) to assist with the redesign.

The second attempt

Discussions with the DSDA team responsible for the rst attempt highlighted the followingperceived aws in the design approach used to develop the original Balanced Scorecard:

1. A tendency to indulge in blue sky thinking which did not reect the realities facing theorganisation for the foreseeable future;

2. Lack of clear Board level sponsorship;

3. Mixing of long-term strategic issues with operational matters;



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4. Limitations on available internal resources to encourage completion of tasks, keep up themomentum and ensure buy-in with the widest possible group;

5. Disconnect between the Board who were designing the Balanced Scorecard choosingobjectives and the team responsible for embedding the measurement and reportingsystem in the organisation. ere was poor understanding of the meaning of much ofwhat the Board produced.

e rst three of these points are all addressed by the 3 rd Generation Balanced Scorecardapproach. It deliberately involves all members of the management team supposed to be usingthe resulting Balanced Scorecard in its design. It relies on a series of facilitated workshops,which uses a pre-determined design framework to force managers to articulate their prioritiesfor the future, the key objectives that need to be met and how they will be monitored andmeasured, all of which is based on consensus decision making. It achieves this by using aquick design process easy for executive managers to participate in a direct consequence ofthe inclusion of an additional design element to the Balanced Scorecard design. is element the Destination Statement neatly and e ff ectively addresses both the issue of design processdifficulty, and that of target setting, two of the issues found with 1 st and 2nd GenerationBalanced Scorecard designs.

In June 2003, the re-design project began, using the 3 rd Generation design and designmethods. e project involved a set of externally facilitated Board workshops during whichthe main strategic choices for DSDA would be claried by the Executive Management team,and a series of Implementation Team meetings that would verify and expand on this tocomplete the denition of the Balanced Scorecard and its associated work processes. eprocess is outlined in Figure 2.

Figure 2: DSDA Balanced Scorecard Design Process

e major diff erences between the second project compared to the rst are:Ownership of the design process and content was clearly invested with the Board andExecutive Management team, and the design process involved directly the key peopleexpected to implement and embed the system in the organisation;

e project was designed to run over a relatively short timescale (three months) toensure momentum and impetus;



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Active alignment of all Board members behind the outputs arising from each workshop through direct follow-up / interview etc.;

A focus on ensuring that the design developed was specically relevant to the needs ofthe organisations leadership team to make sure the design was clearly useful to themonce the design work was complete.

is change in design process had the desired eff

ect the project progressed as planned fromJune 2003 with the full involvement of executive Board members in all three workshops. Afully designed Balanced Scorecard was in use by the Board six months a er the design workcommenced. As Corporate Plans Director, Group Captain William Mahon, observed, we arenow using and beneting from it. e major outputs from this design process are illustratedin Figure 3 below.

e focus on getting the management team to directly engage in the design process had someuseful side-eff ects too, as illustrated by these quotes from DSDA representatives a er theprocess was complete:

[ e process ] created far more communication between Directors the project was acatalyst for this

[ e process ] helped Board and Implementation Team members have a betterunderstanding of DSDA business in the round

Assisted in managing some Defence Supply Chain (one of DSDAs key stakeholders)expectations.

ese illustrate some of the indirect, but never the less important, benets of the 3 rd Generation Scorecard approach adopted.

Figure 3 Major outputs from the DSDA 3 rd Generation Balanced Scorecard project



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It could be argued, therefore, that the revised 3 rd Generation Balanced Scorecard methodology,and use of external intervention to facilitate the organisation through the process, produced aDSDA Balanced Scorecard that could more e ff ectively support the Board in driving theorganisation forward. e next section will discuss this point in more detail.

Discussion

In this section, we aim to place the case study in the context of wider PerformanceManagement theory and thinking. Specically, this discussion use the case study to illustrateconsideration of the following questions:

How do the results of a 3 rd Generation Balanced Scorecard design process di ff er fromthose of a 2nd Generation design process?

Is the 3rd Generation Balanced Scorecard approach more applicable to a public sectororganisation?

3 rd Generation versus 2 nd Generationere were considerable uncertainties and even concern over using a Balanced Scorecard

approach within the Board of DSDA, and these increased following the failure of the rstproject to create one. Persuading the management to participate in the redesign was a criticalenabling step for the project to succeed. is was achieved by illustrating to them the plan forthe second Balanced Scorecard design project. e plan was based on a well-dened anddisciplined process facilitated by experienced external experts, whose role was as much toensure that momentum was maintained and the project nished on time, as it was tocontribute best-practice advice. Redesigning the Balanced Scorecard as opposed toabandoning the tool due to the initial frustration with its utility, not only salvaged the initialinvestments made in a new approach to performance management, but also strengthened theBoards learning about strategic control. It was important to highlight at this early stage why aperformance management solution had to be sought in the rst place the need for thisincreased control of the organisation had not diminished during the time of developing therst Balanced Scorecard.However, persuading the executive management team to start the project was not enough forsuccess. eir interest and support for the work needed to be maintained across the project,such that when it nished they would be inclined to use it in practice.

e 2nd Generation design processes necessarily starts with having to address the di fficult andpotentially contentious issue of determining the most important strategic objectives for theorganisation. e activity of making these choices of most important objectives is di fficult,and so is o en avoided in one of two ways. One option is to select vaguely worded objectives(to which all can subscribe without the need to make actual choices). A second is to delegatethe decision making process outside of the management team itself (e.g. by using a Consultant

to make the decisions, which are then approved by the management team). Either option (orboth together, as happened in the rst DSDA design process) allows the design process tocomplete more quickly, and requires minimal participation from the leadership team. econsequence is that vagueness leads to major issues concerning measure denition and targetsetting. Disengagement during the design process also increases the risk of the managementteam rejecting the resulting tool as not being useful. We see both these failure modesappearing in DSDA a er the design of the rst (2 nd Generation) Balanced Scorecard.

By contrast, the 3 rd Generation Balanced Scorecard design process starts with the need todevelop a clear articulation of the hoped for future state of the organisation, documented inthe device called a Destination Statement. Most management teams nd the development of a



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Destination Statement easy to do (as it describes what managers want or need to achieve,rather than how it will be done). It provides a clear consensus based xed point in the futurethat the management formally agrees to reach before having to resolve the hard questionsabout near-term priority goals. is makes the opening activities in the design projectrelatively easy for managers to engage in. e activity tends to build co-operation andconsensus rather than promote turf-wars and divisions over most important objectives. An

excerpt from DSDAs Destination Statement is shown below:

Figure 4 Excerpt from DSDA Destination Statement

In the case of DSDA, a high degree of consensus was reached within the Board (many ofwhom had never worked with each other before these workshops) concerning the Destinationfor DSDA by 2008. is had two benecial eff ects. First, the Destination Statement laid thegroundwork for a subsequent set of meetings to address the issue of strategic objectives andthe choices they required. Second, it strengthened and reinforced the commitment made tothe decision to re-design the Balanced Scorecard, by providing the leadership team with quickpositive engagement in the design process thus it protected the project as a whole. Further,when it came to the meetings to choose the near-term strategic objectives, the management

team could resolve disagreements by referring back to the previously agreed end-point: thisproved very valuable in maintaining a consensus while the hard choices about priorities werebeing made. Figure 5 shows the DSDA strategic objectives selected in graphical format.Comparing the objective names from rst and second attempts, the di ff erence in some ways issmall. But the understanding and clarity of the underlying objective denitions, as well as theextent of active support for the choices made on the second diagram, is much greater.



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Figure 5 DSDA Strategic Objectives (graphical summary)

A second key benet observable between the two design methods concerns measure selectionand target setting. One of the reasons why measures and targets were not set for so many ofthe original DSDA objectives was that those charged with determining the measures andtargets really didnt understand what the very vague objectives chosen meant. If you are notsure what the objective means within the specic context of the organisation, working outhow to measure progress towards it is hard, setting a meaningful target for how much of themeasure is required, harder still. All that happens when they are presented back to themanagement team for approval is that whatever measures and targets are chosen, debateensues about what the original objectives really meant, o en concluding that the measures /targets chosen are wrong but without new insight into what the right ones might be. Bycontrast, the development of 3 rd Generation Balanced Scorecards, not only support a morefocused choice of objectives (thanks to the context provided by the Destination Statement),which allows for easier measure selection, but the Destination Statements specic descriptionof what will have happened a few years into the future aids target setting too.

Public sector applicability

e case study illustrates that the Balanced Scorecard can have equal value as strategicmanagement tool in the Public sector as it has had in private sector. Despite the rigorous listsof targets passed down from Central Government, for example, Key Targets in the NHS andContinuous Performance Assessment (CPA) items for local authorities, there is still arequirement and desire by management to agree their own priorities within these and to addother items based on local strategic factors. e 3rd Generation Balanced Scorecard approachsupports this requirement by enabling public sector management teams to combine these various factors into a coherent representation of what they would like their organisational unitto look like in the future, the Destination Statement. is degree of clarity allows the mangersto translate the future goals into shorter-term objectives, metrics, and targets. is was alsothe situation for the board at DSDA. Whilst having objectives to meet for the Secretary of



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State and the DLO/MOD, DSDA also had many other priority areas to address. A 3 rd Generation Balanced Scorecard, complete with Destination Statement, more relevant StrategicObjectives, measures and targets allowed them to see the whole picture and manage moreeff ectively by making active use of the performance data generated.

Conclusions

Implementing strategy is hard, with or without a management framework. e 3rd GenerationBalanced Scorecard provides the type of strategic control framework suggested as bestpractice in the academic literature (e.g. by Muralidharan in 2002). Having relevant metrics forpriority strategic objectives can usefully inform managers of their progress and allowcorrective actions or improvement plans to be initiated as required. e need to communicateinformation and receive feedback comprising of a mixture of nancial information andmeasures of performance or value, such as those pioneered by Frederick Winslow Taylor inthe early part of the 20th Century (Huczynski & Buchannan, 1985), has always been anessential element of commercial activity. A similar demand for information and performancerelated feedback has become more pronounced in public sector organisations in recent years.

Efficient performance management relies on clear communication of the strategic objectivesto be pursued by an organisation, and the provision of su fficiently relevant feedback to enablepublic sector managers to manage toward the achievement of those organisational goals. eintroduction of tools like e.g. Balanced Scorecard, EFQM Excellence Model, and PublicService Excellence Model, clearly has the potential to support these varying internal andexternal communication needs and support strategic performance management. e waythey are designed and applied, however, has a signicant impact on their e ff ectiveness. ecritical success factors that these tools rely upon, including use of open communication andparticipative management styles are easily forgotten if they are not su fficiently consideredduring the design and implementation of the approach used.

e 3rd Generation Balanced Scorecard represents the current state of the art in the processesneeded to choose strategic performance management metrics accurately and e fficiently.Further, the strong relevance and ownership developed through the design process used by the3rd Generation Balanced Scorecard ensures that managers are more likely to use theinformation the Balanced Scorecard provides.

In this case study, it is clear from the experiences at DSDA that the rst attempt at introducinga Balanced Scorecard based strategic performance management system failed due to problemsinherent in the type of Balanced Scorecard being introduced, problems that werecompounded by the inexperience of the team charged with the design activity. When DSDAmoved to use the more modern 3 rd Generation Balanced Scorecard design, and obtaineddesign and implementation advice from experienced consultants, the results were much better.

More Informatione Resources section of the 2GC web site contains other 2GC documents relating to the

Balanced Scorecard and modern 3 rd Generation Balanced Scorecard and alsorecommendations for books and articles on the subject and links to useful web sites. Forinformation on 2GCs services including our consultancy and training programmes, visit ourservices section of the web site or email [email protected]

mailto:[email protected]:[email protected]:[email protected]


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About 2GC

2GC is a research led consultancy expert in addressing the strategic and performancemanagement issues faced by organisations in today's era of rapid change and intensecompetition. Central to much of 2GC's work is the application of 3 rd Generation BalancedScorecard, an approach to strategic implementation, strategy management and performance

measurement.References

Cobbold, I.C. and Lawrie, G.J.G. (2002) e Development of the Balanced Scorecard as aStrategic Management tool, Proceedings PMA2002, Boston, MA, USA May 2002

Huczynski, A and Buchannan, D, (1991), Organizational Behaviour; Second Edition, PrenticeHall, London

Muralidharan R. (1997). Strategic Control for Fast-moving Markets: Updating the Strategy and Monitoring the Performance, Long Range Planning, Vol.30, No.1, pp.64-73

Shulver M., Antarkar, N. (2001), e Balanced Scorecard as a Communication Protocol for

Managing Across Intra-Organizational Borders, Proceedings, 12th Annual Conference of theProduction and Operations Management Society, Orlando, Florida, USA.



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Appendix

e three key components of 3 rd Generation Balanced Scorecard are as follows:

Destination Statement:Used to build management consensus, a Destination Statement is a concise but detaileddescription of what the organisation looks like at a specied point in the future (typically 3-5years). Once agreed, the document provides a single basis for tailored messages to supporteff ective strategic communication in- and ex-ternally as well as up and down theorganisational hierarchy.

Strategic Linkage Model:Used to establish what are the key short / medium term activities that are required to deliverthe key short / medium term outcomes. ese key activities and outcomes are known as the

organisations Strategic Objectives and are organised in a strategic linkage model to identifycausal relations between various objectives (if we do X, we should achieve Y; achieving Y willcontribute to achieving Z, etc.)



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Measures and Targets:Used to track the achievement of the objectives specied in the strategic linkage model


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