Linking Balanced Scorecard to Strategy:
A decision making approach
 Types
of decisions in organizations
 Basic principles of linking strategy to
balanced scorecard
 Barriers to managing strategy effectively
 Strategic versus diagnostic measures
 Strategy and budgets
 Life without budgets
Alternative models of
organizational decision making

The Rational Model
Managers identify the problem, generate alternatives, and rationally select
the most appropriate solution.

The Carnegie Model
Organizational decisions are the products of coalitions of interest groups
and of managers who try to find satisficing rather than optimum solutions.

The Incrementalist Model
Managers correct or avoid mistakes through a succession of incremental
decisions to reach an objective.

The Garbage Can model
Problems, solutions, and preferences of different coalition groups are
mixed and contend with one another for organizational attention.

The Unstructured Model
Decision making takes place in series of small steps that collectively add
up to a major unpredictable decision over time.
A typology of organizational
decision making
Agreement on Preferences
High
High
Agreement on
Cause/effect
Relations
Low
Low
Computational
Decisions
Compromise
Decisions
Judgmental
Decisions
Inspirational
Decisions
Basic Principles of Balanced Scorecard

Understand the nature of the cause-effect relations
A strategy is a set of hypotheses about cause and effect

Develop different outcome and performance drivers
 Outcome measures are the lag indicators
 Performance drivers are the lead indicators



Clearly link outcome measures to financial results
Distinguish between measures for performance drivers
and for hygiene factors
Establish diagnostic measures to balance strategic
measures to avoid wrong incentives
Barriers to Strategy Implementation
 Vision and strategy cannot be translated into actionable terms
– Develop consensus
– Emphasize clarity
 Strategy not linked to departmental, team, and individual goals
– Link incentives to long term strategy
– Communicate strategy to all levels
 Strategy is not linked to resource allocation
–
–
–
–
Establish long-term, quantifiable, and stretch targets
Identify the initiatives and the resources for them
Coordinate the plans and initiatives across related units
Establish short-term milestones
 Feedback that is tactical not strategic
– Show how individual activities contribute to overall strategy
– Develop a feedback process to test causal assumptions
– Establish a team problem-solving process to analyze performance
data and adjust strategy
Budgets: A barrier at every level
Objectives
Budgets……
INVESTORS
Financial
Returns
- Do not recognize intellectual
assets
CUSTOMERS
Satisfied, Loyal
Profitable
- Do not help understanding
- Sales targets vs. satisfaction
PROCESSES
Time, Quality
& cost
- Block process improvements
PEOPLE
CEO
Learning & Growth
- Constrain enterprise & learning
Framework/Culture
Stretch goals
Anticipation
-Support compliance & control
-Lead to incremental thinking
- Make unreliable forecasts
Alternative steering mechanisms
Traditional model
Vision
Strategy
Plan-Budget
Annual Cycle
Accounting Focus
Control
Culture - Contract, compliance & control
Emerging model
Targets
Strategy
Plans
Forecasts
Reporting
Continuous process
Rolling cycles
Value Focus
Culture - Enterprise & learning
What should we be focusing on?
Targets
Strategy
Improvement
Resources
Aim to beat the competition, not the budget
Develop it continuously, not as an annual event
Think radically, not incrementally
Manage for long term value, don't simply allocate
resources
Co-ordination Manage cause and effect, not budgets
Costs
Manage value, not whether costs go up or down
Forecasts
Create the future, don't just "keep on track"
Control
Use a few key measures, not a mass of detail
Rewards
Encourage teamwork, not individualism
Delegation
Give managers responsibility and freedom to act, do
not micromanage them
The Balanced Scorecard Strategy Map:
Southwest Airlines
Improve Shareholder Value
Revenue Growth Strategy
Financial
Perspective
Customer
Perspective
Build the
Franchise
Learning and
Growth
Perspective
Improve cost
structure
Increase value
to customers
Product/Service Attributes
Price
Quality
Internal Process
Perspective
Productivity Strategy
Time
Selection
Build the franchise
through innovation
Employee Competencies
Improve use
of assets
Relationship
Image
Service Customer
Relations
Increase customer
value through
customer
management
processes
Achieve operational
excellence through
operations & logistics
Use of Technology
Become a
good
corporate
citizen
Corporate Culture