The effects of constant change on the modern business organization are difficult to overstate. Regardless of size, market, location, or maturity, every company in every industry is facing tremendous change. The electric utility industry is certainly not immune to the new realities, and is facing fundamental change of its own, as many jurisdictions around the world begin to deregulate the industry. As the industry prepares itself for the challenges and opportunities of the 21st century, it has started to examine new strategies, build on previously unconsidered synergies, and look for tools to effect the changes necessary to thrive in this new landscape.
For many companies utilizing the BSC, the method has evolved from a measurement tool to what Robert Kaplan and David Norton describe as a "Strategic Management System." Used in this manner, the BSC allows an organization to link short-term actions with long-term strategy by integrating the system into key management processes. BSC has been linked to many critical systems. For example, the annual business planning and budgeting process is now driven by the Balanced Scorecard. This new system is called "Strategic Resource Allocation," because it provides the opportunity to display how resource allocation decisions directly influence the achievement of strategy. The Scorecard is also linked to the incentive compensation system, and has been cascaded throughout the company to ensure goal alignment at every level.
Perhaps most importantly, the BSC is a powerful communication tool, signalling to everyone in the organization key success measures, and how they can influence them. Kaplan and Norton suggest that a well-constructed Scorecard should tell the story of the organization's strategy through a series of cause-and-effect relationships inherent in the measures. While the development of these measures can prove a challenging task, the results are worth the effort because the Scorecard will then provide a focal point for disseminating strategy throughout the entire workforce.
Producing a series of aligned Scorecards throughout the organization ensures maximum effectiveness of the Scorecard system. By cascading, we are able to use the BSC in all three ways described above: measurement tool, strategic management system, and communication aid.
Many companies started by creating a high-level Corporate Balanced Scorecard, representing the critical drivers of future success for the corporate entity. Consistent with Scorecard theory, the company worked hard to create a document that told the story of their strategy and after minor modifications, they created a multifaceted business performance tool.
At its core, the new Scorecard was a measurement system. Tracking results on objectives and measures helped gauge the effectiveness in fulfilling company strategies. More than that, it allowed the corporation the plans to create a strategic management system by linking the Scorecard to compensation and business planning, management reviews, and other key processes. Finally, the Scorecard served as a powerful communication tool. By distributing the Scorecard, every employee in the company was aware of the company's vision, strategies, and measures of success.
The question to consider was this: Did mere awareness of corporate vision and strategies lead to change at all levels of the organization? Literature on creativity and motivation in the workforce suggests that informed employees do in fact exhibit greater creativity.
To truly maximize the effectiveness of the Balanced Scorecard, it had to align individual employee performance with overall company strategies. The goal was to give every employee the opportunity to display how their day-to-day actions could influence the achievement of the company's key strategies.
That is what the idea of cascading is all about — creating a line of sight from the employee on the shop floor back to the company's long-term strategies. Kaplan and Norton consider cascading the Scorecard an important method of increasing employees' intrinsic motivation; a method that leads to innovation and problem solving. Given these advantages, cascading the Scorecard to ensure goal alignment is a natural extension of the process.
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