Africa Agenda: Applying the Balanced Scorecard Concept in Africa

Friday, 24 October 2008

Kirstie Hepburn speaks to David Norton, the co-creator of the Balanced Scorecard, about his experiences with introducing the balanced scorecard concept in a number of African countries. Has the take-up and implementation of the BSC approach varied in different regions? In Africa, do organisations have the same comprehension of the importance of strategy, or is political and economic instability the main factor? Norton: We have done a lot of work in South Africa and have been impressed with the command that organisations have for Western management approaches. They have a thirst for knowledge and are prepared to get the best tools. The same applies for Botswana. With some of the East African countries, it becomes harder to execute strategy successfully, as you need continuity and stability in order to commit to designing a strategy and seeing it through to fruition. But I don’t find huge differences between countries and regions. The differences are much more structured between organisations that are committed and have built a stable infrastructure than those who have not. Using this approach is extremely effective in helping you deal with turbulence and crisis. And a management system shouldn’t leave the organisation when its leader departs. 90% of the strategy should stay, and the remaining 10% comes from the new incoming leader. All organisations must look to build stability in their infrastructure first, then understand that strategy and measurement in execution are both needed. The board of directors should insist on a management system that has continuity. In Africa, who responds best to the BSC approach: public or private sector, governments or NGOs? NortonL Bob (Robert) Kaplan and I created the BSC more than 15 years ago, when we wanted to build a performance management system that forces organisations to be clear what their strategy is, how to measure it and then how to tie those measures into their management system. This works in any kind of organisation, whether private or public sector, government or NGO. All that is needed is an indigenous structure, and a clearly defined notion of who the organization’s stakeholders are and what their objectives are. Strategy is everyone’s job: while it may be formulated top down in an organisation, the execution is bottom up. It is critical that you are transparent with your own people. People cite the example of African countries, where literacy rates in a company might fall below 50%. I would argue that the literacy rate is not the determining factor, but how you communicate your objectives to employees through other means. If you start with the company objectives, then you can build a system, educate the workforce on strategy and give them the tools they need to implement it. In the beginning, the BSC was picked up very quickly by the private sector, including the petrochemicals and other process-driven organisations that tended to be measurement / quality-prone in the first place. Then government organisations began to look at the system, and it is probably better suited to government and NGOs as it forces them to begin with articulating their vision, mission and strategy. The difficulty with these types of organisations had always been in defining a measurement of success. Once you can do that, the whole approach is pretty similar to the BSC in private sector companies. Take the Diabetes Association for example: they have customers (sufferers, their families) that have needs; they can then build a process to answer those needs; then train people and give them the necessary tools. The strategic approach is 80% the same as the private sector. Government organisations have been highly successful in this approach, including the City of Brisbane, South African National Parks – Home of The Kruger Park, South African National Defence Force, Office of The Prime Minister in Namibia and a National Project for the Government of Botswana aligned to their National Development Plan and Ministry of Works in Bahrain. The government of Botswana is building a management measurement system and the first thing they did was to identify that the role of the government was to improve the situation of its citizens, which it would achieve through welfare, education, tourism and hotels and so on. How can strategic management systems cope with such radical daily change – either economic or political - as we’re seeing in the world today? Can systems ever be flexible enough? Norton: In periods of turbulence, you need some kind of beacon to guide you. There is a tendency for managers to focus on the short term, and cut costs for safety. While it’s necessary to be efficient and trim the excess in a company, managers must not end up cutting in important areas that have an effect on the long-term goals and effectiveness of the organisation. Having a strategic plan in place will identify these areas, such as innovation, customer service and employee satisfaction. Having a clear and measurable strategy gives senior executives the foresight to make these tough decisions, within the context of their organisations and minimising the long-term negative impact. The Balanced Scorecard (BSC) approach also allows the executive to communicate the strategy to the stakeholders – shareholders, employees and customers - which is absolutely key. Operating in an economic crisis is all about confidence. Numbers go bad – that’s the way economies work – but the situation gets dramatically worse as people lose confidence in management and performance. The ability to be open and communicate these challenges is essential; when people believe that the company is hiding something in times of crisis, they lose confidence. Who should take the blame for the failure to execute strategy – the senior executives or the corporate framework within which they operate? Norton: 70% of private sector companies in North America and Western Europe use the BSC in some way. But of those 70%, I would say that only 25% use the BSC in its full capacity as a total management approach, with the BSC measurement tool at its centre. 70% of companies with a formal approach to measurement outperform their peer group; this number falls to 25% in cases where there is no formal approach. Research tells us that you have a three times greater chance of success if you use BSC. But failure of success is ultimately down to the senior executives, who must take ownership of the programme. They are the ones that have to look at the programme and ensure there is comprehensive integration within the organisation – at the end of the day; BSC is still just a tool. The executives’ real goal is to change the overall direction of the company, starting with defining the strategy. Strategy is like a pot-pourri of issues, ranging from customer intimacy, speed to market, product development and so on. If you can’t describe your strategy, you can’t manage it. 60% of organisations don’t tie their budget to strategy. 95% of employees in an organisation don’t know what the strategy is. 70% don’t tie incentives and compensations to strategy. When the management team meets monthly, 85% of them spend an hour or less talking    about strategy. These are just some of the areas that must be driven by the senior executives. What’s the benefit to African organisations of using the BSC approach? Can you measure it in monetary terms? Norton: We can measure the pay-off that organisations get when they execute strategy successfully. Take the IT services company Infosys as an example: after they introduced BSC, they had 300% growth per annum for four years, as well as 300% growth in profitability and earnings. They grew their customer base from 300 to 400 and increased their number of big customers by four times. In Southern Africa The Balanced Scorecard is extensively used and African Banking Corporation has seen a keen focus allowing staff to prioritise on key objectives that has led to a tremendous growth in turnover and regional influence. Infosys had these results for a number of reasons, but all because they had a coherent and measurable strategy. This was through innovation (revenues from new projects went up 50%), and employee satisfaction, for example (they were rated the number one employee in the IT sector). Profits and revenue grow through growth in the intangible areas of the business. And that’s what BSC is all about: the drivers of growth are the intangible areas of the business, and the results are the tangibles. We have found that nine out of ten organisations that have a strategy actually fail to execute it: this isn’t because of bad management, but because of no management. The organisations had no system to manage the long-term view, and they were only focused on the short term. So the BSC gives these organisations a way of creating value in the long-term. How have you evolved the BSC concept since you created it with Robert Kaplan in 1992? Norton: The idea of BSC, which we first published in 1992, is still growing and evolving. The first real evolution of the approach was from the prescriptive system, which provided measurements, to using the BSC to create a strategy-focused organisation. The final evolution is for companies, once they recognise they need a way to manage their strategy, to build a permanent infrastructure. They need a small group to manage the process and to make it happen, so that strategy management becomes a routine part of professional management. We call this The Office of Strategy Management. At what point should an entrepreneur look to incorporate a tool like BSC into his business? Norton: Any time you have more than one person in the organisation, you face problems with communications. You may think you communicate well with your team, but there is always a gap. Entrepreneurs have to get out in front of themselves; they all get to a point where they need a formalised budget and discipline, but does that work with the personality of an entrepreneur? In the case of Bill Gates at Microsoft and Steve Jobs at Apple, it could. If you’re going to succeed in taking your business from your garage to the office, to investors with millions, you need to bring structure to your business. (Incidentally, Microsoft uses the Balanced Scorecard, and Apple was a member of the original study group). David Norton is presenting live and in person in Nairobi on November 24, in an event organised by Global Leaders. This is Dr Norton’s first public presentation in Kenya, and details can be found on www.globalleadersevents.com/nortonke Share this article with others: Comments (0) Subscribe to this comment's feed Write comment Show/Hide comment form Name Email Title Comment smaller | bigger Subscribe via email (Registered users only) I have read and agree to the Terms of Usage. Add Comment