The Balanced Scorecard (BSc), which we have looked at closely in a few posts, is a very popular framework for communicating, measuring and managing business strategy. The discussion in this case related to the use of the BSc as a means to also manage operational performance. This makes intuitive sense because if we’ve gone to the trouble of putting together a BSc that we are happy with, we should try to get the most out of it. The specific question was whether it would be appropriate to use BSc metrics in a conversation at the operational level. The conversation also included (as generally happens!) a number of diversions that were as interesting as the core idea. For me, the conversation led to a number of insights that you might find useful.
The initial focus of the conversation was the value of using the BSc in a conversation at the operational level. One of the problems with doing this is that the rate at which values change for is not the same for strategic and operational metrics; strategic metrics tend to change more slowly than operational metrics. So if we were to review strategic metrics as often as we would operational metrics, we would find they haven’t changed a lot since we last looked at them and so they wouldn’t be very useful. More importantly, there is a risk that people using the BSc would lose interest and this might translate into lack of confidence in the framework.
But surely we can have two sets of metrics, a strategic set that we look at during the strategic conversation and another one we look at during the operational conversation. We could, but this would result in another problem. How does one make sure that operational metrics are aligned with strategic metrics? A simple example will illustrate the issue. Consider an initiative we need to execute that will enable a strategic priority. For example, our strategic goal might relate to depth and breadth of certain skills, knowledge and competence that will allows to perform a critical process at a certain level of performance to meet customer expectations. If we don’t have a way of measuring the level of competences in the organisation, we can’t say how well we are doing. So the first step – and this might not be a trivial exercise – might be implement a framework and process that allows us to make this measurement. But in the short term we would want metrics that tell us how well the initiative to implement is framework is progressing, not necessarily how much of the competences we have.
So does the strategic BSc have a place in the operational conversation? The surprising answer is that it does. To understand why, it may help to look at scholarly research on a related topic: employee goal alignment (thanks Gavin). We know intuitively that the more aligned employees’ goals are with strategy, the better the organisation is likely to perform. But recent research looked at two aspects of employee goal alignment. The terms used, plan alignment and employee alignment, weren’t particularly well chosen, but plan alignment is about employee goals being the same as organisational goals and employee alignment is about employees understanding strategic goals. The data analysed came from the US public service covering a period of four years and a large number of government programs. The study found no relationship between plan alignment and organisational performance, but did find a positive correlation between employee alignment and organisational performance.
The takeaway from the study is that if you want to improve organisational performance it doesn’t help to just use organisational goals to measure employee performance. What you must do is make sure employees understand organisational strategy. What this means is that using a (strategic) BSc during a review of operational performance is useful, but not because we are looking at strategic metrics. It is useful because it serves as a contextualising mechanism, i.e. a way for employees to improve their understanding of organisational strategy.
This also explains why some organisations that have successfully implemented the BSc framework go to a lot of trouble to communicate the BSc broadly within the organisation and to insist that everything that employees do must be tied back in some way to the BSc. Of course, this is not always easy and often the linkage between the short-term action and the BSc appears contrived. But the important thing is that this doesn’t matter so much. What matters is that employees looking for ways to establish the alignment to the BSc make an effort to interpret the BSc in their attempt to align with it.
What seems to be happening is that improved employee understanding of strategy improves organisational performance – even if they are unable to explicitly articulate the precise nature of the alignment! How does one explain that?
We do know that a large part of our decision-making is driven by intuition and that we post-rationalise the decisions. This means that when we make decisions, much of the actual process is hidden from our conscious awareness, and influenced by our cognitive biases. The process of actively trying to interpret strategy could bias our decision-making criteria towards decisions that align with strategy even though we aren’t aware this is happening.
Let me know what you think…
If you are interested in learning more about organisational alignment, how misalignment can arise and what you can do about it join the community. Along the way, I’ll share some tools and frameworks that might help you improve alignment in your organisation