You are the chief executive of a telecommunications company. One of the key objectives is to expand customer base by 30 per cent in the next three years. How do you ensure that each member of staff, down to the last employee, fulfils their duty towards helping you to realise this specific objective?
Many business leaders would call a meeting to deliver the message that every employee must work harder for the company to increase customer numbers by 30 per cent. They would ask their top managers to push their respective staff to bring in the necessary numbers. Some would zero in on marketing and sales department and demand results. They would then retreat to their offices and wait for the figures to start trickling in. Should that be it, really?
The Balanced Scorecard performance management system provides for a more realistic approach.
The Balanced Scorecard, which helps in setting overall objectives and targets, is also designed to ensure that the little pep talk with staff urging them to worker harder is supported by a system that inspires each staff member to make his/her contribution towards the target.
This is done by cascading the overall Balanced Scorecard down the organisation’s departments to the individual staff. Cascading is the creation of mini-Balance Scorecards at every functional level of the organisation, based on the objectives and targets specified in the organisation-wide scorecard.
Cascading allows each department to focus on the performance objectives that are specific to them, but which complement the overall objectives.
Cascading provides ample space for each level to plan their strategies and align them with the overall organisational strategy. The mini-scorecard focuses on measures that the department can use to check and manage progress of its activities without conflicting with the intentions of the other sections.
Balanced Scorecard cascading not only link up employees, but also aligns them with the overall company strategy. They understand it, are inspired by it, and thus work to fulfil it.
The alignment process
At the very top is the overall Balanced Scorecard. It manages performance of the organisation as a whole. Below this is the second level scorecards, representing departments, divisions or sections, however you call the key functional sections of the organisation. They are developed from the objectives set in the overall scorecard.
You do this by picking the template scorecard objectives that directly influence specific departments and adding them to the scorecard you are creating for each department. The third level would be the departmental units. In each department, relevant objectives from the second tier scorecard can be sent further down to the third (unit) level according to relevance. Depending on the structure of the organisation, the process is cascaded down in similar manner to the last layer, which is the individual.
Involving individuals in creating their own Balanced Scorecards is likely to generate more commitment towards the entire process. The individual staff has to come up with his or her own objectives in relation to their position and in connection with relevant objectives. They also come up with measures and targets.
Different approaches to Balanced Scorecard alignment
The approach to cascading the Balanced Scorecard can be pegged on two broad methods. The theme cascade approach is applied when the intention is to reinforce a common focus across the organisation, such as innovation. In this case, activities at different levels are expected to carry this central theme with them.
The objectives cascade approach demands the alignment of objectives that reflect shared policy or stakeholder priorities. This is most commonly found under the financial and learning and growth perspectives of the Balanced Scorecard.
Under this approach, the objectives of the parent scorecard are cascaded down the organisation’s business units as long as they are operationally similar. Nonetheless, the objectives cascade method allows the introduction of contributory objectives at the lower levels. In some situations, new objectives can be introduced, but they must be relevant to the ultimate strategy of the organisation.