scores

they've got to balance

How Ericsson used the balanced scorecard to translate strategy to action.
By Team-People & Culture, Ericsson

both the private and public sectors world-wide. Harvard Business Review has identified it as one of the most important management practices of the past 75 years. The objectives and measures of balanced scorecard view organizational performance from chosen perspectives (financial, customer, internal business process and learning-growth). The chosen perspectives give managers a balanced view of their business (past, present, future - facts versus perception - internal versus external - leading versus lagging). These also cover the ability to transform peoples' skill and knowledge into structures and processes, transform business opportunities into real business and be prepared for the future.

Why balanced scorecard made sense

During 1999 India was one of the emerging telecommunication market and for companies like Ericsson it was absolutely necessary that we take the right decision at right time in order to be successful in the market place and grow along with all our key customers. This was a challenging time for in Ericsson India as to how do we keep focus on the evolving customer expectations and prepare ourselves for the same, at the same time continue to run our business profitably. In such a business environment it was absolutely necessary that we got feedback and direction about our strategies and results in a holistic manner, so that the early symptoms could be received, analysed and used for continuous improvements, without losing focus from our main objectives. The balanced scorecard was identified as a management framework, which satisfy and answer some key questions, like what we needed to do and how well we were doing it? It also seemed like the idea tool to link strategy to action, focus on business performance, measure strategy, and take effective decisions. The Ericsson team felt that the balanced scorecard would provides a systematic way to translate the vision into a clear set of objectives and further translating these objectives into a system of performance measurements that effectively communicate a powerful, forward-looking, strategic focus to the entire organization. It was in 1999 that we decided to implement balanced scorecard as a management framework for implementing and aligning complex programs of change and indeed, for managing strategy - focused organisations and use the concept as broadly as possible. To roll out balanced scorecard in Ericsson India, an implementation strategy along with an operational plan was first put in place during 1999. The inputs were gathered by a cross-functional team, which was nominated by the managing director. The team brainstormed and brought out the areas to be looked into for the successful and effective implementation of the BSC. Subsequent to the introduction of the balanced scorecard framework, a vision - mission exercise and

ompetitive advantage requires companies to develop aggressive strategies for delivering more customer value in less cycle time. Process-based performance measures that are logically linked with financial control measures form a comprehensive and critical foundation to direct and monitor competitive strategies in today's business environment. The balanced scorecard is a multidimensional framework for describing, implementing, and managing strategy at all levels of the company by linking objectives, initiatives, and measures to an organization's strategy. A balanced scorecard is developed for an organisation with the purpose of giving a fast and comprehensive view of the business. It complements the traditional financial view with perspectives and measurements that relates to present and future performance indicators. It provides a way to translate the vision into a clear set of objectives. These objectives are then further translated into a system of performance measurements that effectively communicate a powerful, forwardlooking, strategic focus to the entire organization. The balanced scorecard is not a static list of measures, but a framework for implementing and aligning complex programs of change and indeed, for managing strategy- focused organizations. Since its introduction by Professor Robert Kaplan and Dr. David Norton in 1992, the balanced scorecard has been implemented at corporate, strategic business unit, shared service functions, and cascaded to team and individual levels at hundreds of organizations in

a road map for implementation, workshops were conducted with each perspective owner and team members to collect inputs and see the synergy with the existing systems and processes, which were currently in use. Finally the balanced scorecard team compiled the inputs, analysed and prepared a draft balanced scorecard for Market Unit India. The draft was presented to Ericsson management committee (EMC) and with corrections it was approved. Final balanced scorecard, including reporting schedule, was shared within the company during the fourth quarter of 1999 in the Ericsson Management Group Meeting (EMG), which is attended by all managers of Ericsson India. It took us two full years to implement the BSC through all functions and units and now, we are able to harness the full potential of the tool and the synchronization of individual and unit goals is visible with respect to our strategic plan.

The model that we use

The balanced scorecard at Ericsson is used to measure our present performance and how well we are prepared for the future. It visualises vision and strategies, supports a balanced view of the business through different perspectives focuses on key performance indicators and is a driver for improvements. The scorecard is essentially defined in the strategic planning process (ESP) to reflect the strategic intent. Thus the scorecard focus can change over time and are different for different businesses. Each management team must define their own scorecard as a part of their strategic planning. The following perspectives are mainly being used today within Ericsson: Financial: Indicates whether a company's strategy, implementation and execution are contributing to bottom-line improvement. It relates to profitability measurement such as operating income, return on capital employed and sales growth. Customer: These are the market and customer segments in which the business unit competes. The performance of the business unit will be measured in Link action with strategy Drive action

these targeted segments. The perspective includes some core outcome measures such as customer satisfaction, customer retention, new customer acquisition, customer profitability and market and account share in the targeted segment. Internal efficiency: It will focus on measures of the internal processes that will enable one to deliver the value propositions that will attract and retain customers in targeted market segments, and satisfy shareholder expectations of excellent financial returns. Employee: This perspective will focus on the company's human resource capabilities to handle current and future business needs. Some of the measures include employee satisfaction, employee retention, training and skills development. Innovation: It focuses on the potential needs of the customers, and then creates products and services that will meet these needs. The company needs to identify and nurture new markets, new customers and the emerging and potential needs of existing customer. Then the company needs to create and develop products and services to fulfil these needs.

The process that is followed

At Ericsson, strategic planning is the most important step towards setting up future directions for the organisation. An ESP (Ericsson Strategic Planning) Workshop is held around start of the year, each year. A core group of Ericsson Managers (a cross-functional team), trained on balanced scorecard methodology facilitate preparation and continuous monitoring of balanced scorecard in the organization. Ericsson Management Committee (EMC), business unit core team, unit/department heads and invitee members yearly participate, share inputs, discuss and propose balanced scorecard outcome measures and performance drivers. The preparation work starts during the fourth quarter and the company wide balanced scorecard is finalized and shared by middle of January. Unit and function level balanced scorecards are ready and approved by end of January each year. When the balanced scorecards at all levels are prepared and approved, the key performance indicators are selected on which the regular reporting is done within management group. At Ericsson, the management system build around the scorecard enables us to become aligned and focused on implementing the short and long-term strategy. Balanced Scorecard as a common framework secure that we are moving in the same direction at the same time as we pay full respect to market dynamics and the nature of individual business. Every measure selected in the balanced scorecard is an element in a chain of cause and effect relationships that communicates the meaning of the strategy to the organization. The scorecard is referred in the strategy implementation process reflect the strategic intent. Each function and unit defines their own scorecard as a part of their yearly objective planning.

Visualize vision and strategies

Balance of business perspectives

Stay balanced

Ericsson's balanced score card model

Drive for performance improvements

Focus on key performance Indicators

Stay focused

The company objectives are used by the functions and units to define their own objectives. These unit objectives are broken to departmental objectives and finally linked to the individual objectives. Individual objectives are then aligned with the departmental objectives in their Balanced scorecards, which are aligned to company objectives.

THE STEP BY STEP PROCESS

Training and education of top management and securing their buy-in Preparing beta version of project plan and review and sharing it with management Established a cross functional balanced scorecard team with a project manager Preparing assignment and project specifications, establish mile-stones Review of balanced scorecard model and feedback from managers Identification of perspective owners within the team Balanced scorecard introduced in annual kick-off meeting attended by all managers

Review and reporting

The balanced scorecard is reviewed at two levels, one at the company level and the other at individual unit level on a quarterly basis. The company level review is reported at EMC (Ericsson Management Committee) level. The final review of yearly achievements is done at the end of the year. The unit and department heads are responsible for implementation and progress reporting for the respective balanced scorecard and to ensure that this is in line with organization-wide balanced scorecard. Periodic balanced scorecard reporting keeps the process alive and delivers professional value added analysis and recommendations to enhance strategically decision making for Ericsson's long- and short-term strategy.

Organizational benefits

Formulation of a vision and mission The balanced scorecard has resulted in a shared mission, vision, goals and statement for the initiative objectives throughout the organization. Every individual employee is well aware of company's goals and objectives. They can clearly see the direction which company wants to objectives, all efforts are directed towards achieving take. Strategy is communicated and linked to objective company's strategic objectives. With balanced of managers and employees. All the employees need scorecard in place along with KPIs for each objective, to align their individual objectives to the BSC of their one gets a balanced view on actions and results i.e. unit and department. Therefore each employee's what impacts what and how. With regular tracking and contribution is directed towards a common agreed update, the shortcomings are easily identified, attended goal. Everyday actions and initiatives are related to to well in time and with required priority and efforts. strategic objectives. With clear and well-defined The measurement data outputs helps decision making on facts and figures, thereby making decision-making sound and effective. Regular updates on the performance measures provide opportunities to identify the performance gaps and continuously improve performance. All this is key to contributing towards customer satisfaction both internal and external. And all these lead to overall organisational success, which can be, measured through financial growth, www.humancapitalonline.com operating margins, income, customer satisfaction, HC market share and employee motivation.

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