Building the Balanced Scorecard in Public Sector Organizations

Building the Balanced Scorecard in Public Sector OrganizationsBy Ralph Smith

“Take it or leave it? Not hardly. In our case, our customers’ choices are: take it or take it…they couldn’t leave it if they wanted to…”

So spoke the Chief Information Officer of a major state government organization.

His department was responsible for providing technology support to other state departments (Treasury, Corrections, Agriculture, etc.). They were literally the only game in town, with customers that were required to “buy” in-house services regardless of the circumstance.

They were literally the only game in town, with customers that were required to “buy” in-house services, regardless of the circumstance.

This single-source supplier relationship is, of course, not uncommon in public sector organizations, and at first glance, it would seem to be an attractive business situation. There are certainly many private sector organizations that would love to have such a captive customer base. Interestingly enough, however, the CIO referenced above wasn’t boasting. He was bemoaning the fact that his department suffered many seemingly uncorrectable problems: lack of customer focus, lack of any sense of urgency to improve, and an inability to prioritize projects. These problems are shared by a great many public sector organizations, and solutions are often hard to come by.

Interestingly enough, however, the CIO referenced above wasn’t boasting. He was bemoaning the fact that his department suffered many seemingly uncorrectable problems: lack of customer focus, lack of any sense of urgency to improve, and an inability to prioritize projects. These problems are shared by a great many public sector organizations, and solutions are often hard to come by.

This is not an indictment of the public sector; focusing on strategy is a difficult challenge in any type of organization. There are several reasons why the public sector might find strategic focus particularly difficult. For example, reporting to elected officials can create a revolving door effect among

There are several reasons why the public sector might find strategic focus particularly difficult. For example, reporting to elected officials can create a revolving door effect among

There are several reasons why the public sector might find strategic focus particularly difficult. For example, reporting to elected officials can create a revolving door effect among the leadership that results in frequent changes of direction. External factors often force budget constraints without regard for the impact on the mission and vision of the organization.

Media interpretation and sensationalism can lead to short-term focus to solve perceived problems. These are but a few of the factors that prevent focus on long-term strategy.

In the previous article, Mapping Strategy in Public Sector Organizations, the process for identifying the key strategic themes and their causal relationships was described. Developing the strategy map is a key first step in the strategic process. This article will focus on the next step: developing a balanced scorecard that enables the organization to identify the key measures that will lead to long-term strategic success.

What is a Balanced Scorecard?

A balanced scorecard is a management tool that provides senior executives with a periodic assessment of how well their organization is progressing toward achieving its strategic goals. The concept was introduced in the early 1990’s by Dr. Robert Kaplan and Dr. David Norton, and has grown in popularity ever since. This appeal is easy to understand; strategy can be a nebulous concept that is difficult to understand and implement. Having a tool that can provide a concise view of progress towards desired organizational direction is obviously of value.

A typical strategy map and balanced scorecard are each divided into the same four perspectives: customer, financial, internal process, and learning and growth. Indeed, it is normal for each of the strategic objectives identified on a strategy map to have associated measures on the balanced scorecard. The logic behind the perspectives holds that customer satisfaction is driven in part by fiscal responsibility and in part by customer-focused processes. Process quality is in turn driven by the organization’s ability to develop and grow its people and systems. This hierarchy is well-established, holds for most public sector organizations, and provides a useful framework for the development of scorecard measures.

A scorecard should contain just enough data to give a complete picture of organizational performance toward achieving the overall strategy… and no more. This typically means that each of the four perspectives should contain anywhere from 5-8 measures and result in an overall total of 20-25 measures.

A typical barrier to scorecard implementation in public sector organizations is the tendency to want to measure everything, which can easily result in 50+ measures for the scorecard. Many organizations feel adding more measures will help clarify direction, when in fact it often does the opposite. Having so many measures can dilute focus and leave the senior team unsure what the top priorities really are. It is critical to limit the measures to a more manageable number.

Scorecard measures are typically a combination of lag and lead indicators. A lag measure is defined as one that reflects an outcome, or present-day bottom-line result. The ultimate lag measure in many public sector organizations is customer satisfaction, which can be measured through surveys, number of complaints, etc.

Surveys quantifying the level of satisfaction reflect the success / failure of all the things the organization has done to try and keep their constituency happy. Lead measures are defined as those that drive future outcomes or bottom line success. Lead measures typically reinforce certain types of behavior within the organization. For example, a large state government organization had developed a host of new processes to make it easier for their customers to interact with them. Communication of the availability of the new processes was obviously critical to their utilization and success, so the state adopted a lead measure entitle “# of public outreach events”. An outreach event had to fit certain defined parameters and was designed to get the word out regarding new processing options. Note the logic that outreach events is a measure that will better inform the public, hopefully make it easier for them to deal with the state, and as a result drive customer satisfaction higher. That makes the number of outreach events a lead measure that will theoretically drive the satisfaction lag measure. This measure reinforces the behavior that the organization needs to take the time and effort to communicate specific information to its customers, thereby giving them the highest probability of success.

What does the Balanced Scorecard look like?

There is no set-in-stone format for a balanced scorecard; each organization should customize their card to fit their own individual needs. Having said this, following the general template outlined below can make the card easier to read and interpret.

The first column of a balanced scorecard usually contains the four perspectives in the order of their relationship on the organizational strategy map. The typical public sector order is as follows:

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The second column typically contains the strategic objectives of the organization. These should be determined by the executive team and can be identified almost verbatim from the strategy map. This illustrates that the strategy map should be a precursor to the balanced scorecard. While the strategy map is about the development of strategy, the balanced scorecard is about strategic execution.

Typical strategy map categories can be filled in as shown here:

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Determination of the objectives is typically the most challenging step of scorecard development. It requires a common agreement on the direction of the organization and an understanding of all the relevant objectives needed to achieve it. Filling in the objectives is like putting together the border of a puzzle; the objectives provide the overall framework for the strategy, and then all that is needed is to fill in the missing pieces.
The next step is to develop specific measures for each objective. Care should be taken to think through the appropriate lag / lead balance, as shown below:

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Note that each objective in the example has measures associated with it. Only in rare occasions will there be an objective with no measures, but it is possible. Certain objectives are critical to organizational success but may be very difficult to quantify. Keeping these on the balanced scorecard without measures to facilitate ongoing discussion is an option. Further note that it isn’t necessary to have both a lag and a lead measure for each objective, or an exact 50-50 balance between lag and lead for the overall scorecard.

There are many different formatting options to illustrate the lag-lead balance. Some public sector organizations remove this column from the scorecard entirely. Others form an additional column as shown above. Still others form two measurement columns and separate them into lag and lead.

Again, the ‘right’ answer is the one that works best for your organization. Gathering data is the next step in scorecard development. As always, there are multiple formatting options for the scorecard categories. Common data columns include current month / quarter, last month / quarter, year-to-date, same month / quarter last year, rolling 12 months, etc. There is no perfect answer, so public sector organizations should select the categories that work best for them. The example below is the simplest, with the only data column being the most recently completed month.

The example below is the simplest, with the only data column being the most recently completed month.

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The selection of measures and gathering of data is heavy detail work that is usually performed by an implementation team. This team should consist of employees below the executive level that understand both big picture and detail issues. Once sufficient data has been gathered the executive team should meet and develop appropriate targets, as illustrated below.

Once sufficient data has been gathered the executive team should meet and develop appropriate targets, as illustrated below.

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Again, this is one of the simplest ways to display targets- illustrating current time period only. Some organizations choose to also display a year-to-date target or multiple target levels (e.g.- 1-year, 2-year, 3-year, etc). The data in the actual column is often color-coded to make it easier to assess which measures are on target and which are not.

Space permitting, a final column can / should be added for comments. These can provide interpretive insights, reference, charts and graphs, or direct the reader to where more detailed information can be found.

A balanced scorecard should be viewed like the front page of a newspaper…the headlines are all you see on the front page. Comments are like the notes at the end of the front-page articles that tell the reader where to go for more information.

Sample comments are illustrated below and complete the picture.

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Putting a scorecard like the one above together can be a fairly time-intensive project. It will require a few days of executive time up front to build the strategy map, and a day or so of executive time on the end to review the proposed measures and set relevant targets. The balance of the time will be spent by the implementation team. This is the group that will be responsible for selecting the measures, precisely defining them, collecting the data, etc. Resource time requirements will vary greatly depending on the type of strategy and the state of data collection systems.

Conclusions

Creating the balanced scorecard is a critical step in the strategic process. So many organizations create a strategic plan and then dutifully ignore it because day-to-day issues / firefighting tends to take precedence. The scorecard periodically reminds the organization what the critical strategic issues are and gives the necessary feedback on the progress toward achieving them.

It is important to remember that the scorecard is like a scale. The role of the scale when you are on a diet is not to make you lose weight. The scale merely provides you with feedback on how you are doing. In the same way, building a balanced scorecard will not improve organizational performance. It will simply give you feedback to know how well you are achieving your strategic direction.