Balanced scorecard in the Nordic countries - public sector experiences

1. Balanced scorecard in the Nordic countries - public sector experiences Dr. Nils-Göran Olve www.cepro.se; www.ida.liu.se/labs/eis/people/ngolve.html

2. ”The Nordic countries”?

3. The Concours Group Concours (kôn’körs’,-körs’) n. the act of moving or flowing together … from the Middle English and Old French … to assemble. Founded in 1997 • Independent • Growing Successfully Distributed Offices across North America and Europe and in Sydney, Australia Stockholm office, CEPRO, founded in 1968 as a separate company.

4. Research Education Consulting Offering three integrated services

5. First published in 1997, revised in 1999 (Also in Finnish 1998) Wiley 1999; now translated also into Spanish, Japanese, Korean, Portugueseand Dutch Capstone 2002

6. Agenda • Why scorecards became popular in the Nordic countries • Scorecard use in the public sector • Some ideas for scorecard implementation and use

7. Why scorecards became popular in the Nordic countries

8. ”Unseen wealth”?- Ericsson’s value ”Market Cap”, shareholder value During the past four years Premium (=”Intellectual Capital”?) 350 Equity SEK (bill.) Assets 250 Liabi-lities

9. The Balanced Scorecard Financial Perspective Yesterday Goals Measures Internal Customer ProcessPerspective Perspective Today Goals Measures Goals Measures Vision Learningand Growth Perspective Goals Measures Tomorrow Kaplan & Norton (1992, 1996, 2000)

10. From vision to action -- responsible: __________________ Vision:…... Strategic aims Critical Success Factors Action plans Metrics and targets Financial / Owners / Management Customers Processes / Internal efficiency Development & renewal

11. The Balanced Scorecard Strategy Map(Robert Kaplan, 2000) Improve Shareholder Value Financial Perspective Shareholder Value ROCE Revenue Growth Strategy Productivity Strategy Build the Franchise Increase Customer Value Improve Cost Structure Improve Asset Utilization • New Revenue Services • Customer Profitability • Cost per Unit • Asset Utilization • Customer Acquisition • Customer Retention Product Leadership Customer Intimacy Customer Perspective Customer Value Proposition Operational Excellence Product/Service Attributes Relationship Image Price Quality Time Function Service Relations Brand • Customer Satisfaction “Build the Franchise” “Increase Customer Value” “Operational Excellence” “Good Neighbor” Internal Perspective (Customer Management Processes) (Innovation Processes) (Operations & Logistics Processes) (Regulatory & Environmental Processes) Learning & Growth Perspective A Motivated and Prepared Workforce Strategic Competencies Strategic Technologies Climate for Action

12. Where we are now: reflections on the current state of BSC projects • Great interest: • 27% of BUs in large Nordic firms in 1999, 61% ”within 2 years” • One Swede in 600 bought the book, plus other books • ”Gartner estimates that 40% of the Fortune 1000 companies will have a Balanced Scorecard in place by the end of 2000” • But: Disappointments not uncommon: • just an empty shell and CEO rhetoric • just one more software package • just additional key ratios • How it was meant: a communication tool to… • agree on tasks • communicate experiences • celebrate success and learn from it

13. Down to individual employees • A format for discussing expectations and achievements, and creating trust and motivation • Empowered employees cannot be programmed. They need to share the vision • Companies increasingly ask employees to share in building future capabilities ”on speculation”: • building customer relations • developing new skills and ways of operating • documenting for the future • …... • People need guidance and motivation for this!

14. To tell the story of our vision • …to our employees • …to customers, partners and others whom we engage in our ”imaginary organization” • …to the market for new talents • …to our owners and banks • …to society at large Not a static value, but a convincing and dynamic logical case why our way of preparing for the future will be rewarded!

15. Scorecard use in the public sector

16. The public sector in Sweden • 289 primary local authorities (municipalities; ”communes”) • roads, schools, welfare… • 21 counties (”secondary communes”) • health services, public transit etc • >300 government authorities, boards, committees etc • Post, railroad etc are state-owned companies which are gradually being deregulated and opened to competition • Tradition of greater independence from government than in most countries

17. Books and booklets have been produced, and sometimes distributed free of charge, by organizations like the Association of local authorities and the National Financial Management Authority

18. State level: the Swedish government • Several attempts, but no major examples • The ”Legal, Financial and Administrative Services Agency” a pioneer • Mostly on local level – and some cases where existing metrics have been restructured according to four (or five) scorecard perspectives • Encouragement from the Swedish National Financial Management Authority: book, conferences, community

19. The Swedish Police • National Police Board + 21 county Police authorities • Scorecard projects in several counties: • Voluntary; encouraged from the national level • Participation a central theme • Often very down-to-earth and concrete, starting on operative level • No coherence and still after several years no unifying project. But local scorecard activities persist

20. A Finnish state example • Third stage of development program for the management of the Road, railroad and maritime administration • Proposes BSC-like model • Indicators: 1) describe current situation, 2) monitor development • Used in connection with budgetary planning. Measures to be reported in March and November each year. • Ministry of communication to develop method for tracking the situation continuously for all transportation in Finland, beginning in 2001

21. County level: Jönköping one of the leadersDepartment of internal medicine, Högland hospital

22. Hospitals in the Stockholm region ”4 P”: • Patients • ”Personal” = employees • ”Pengar” = money • Processes Patients Employees Processes Money

23. Aiming for virtuous circles Patients Will attract contracts from purchasing authorities Will attract competent staff Employees Processes Money

24. Finnish public servants to be measured with BSC • Decision in 2000 to develop a model based on ”useful and valid multidimensional (BSC) systems for evaluating and informing about the results of local government activities, to support strategic activities and personnel leadership”. • Factors to take into account: • Service effectiveness (available, adapted to needs) • Service quality • Customer satisfaction • Productivity • Profitability • Agility of service processes • Employee ability

25. Local government level: BSC in Swedish local authorities • At least 30 (of 289) have more extensive projects • About half of these only for city government use • Three or four are implementing complete ’balanced steering’ • Schools and welfare are the most popular areas for scorecards

26. Helsingborg - 1 • Two years of education and tests • Project organization with: • Steering group with political representatives (members of city government) • Project team consisting of 14 project leaders. These answer for their areas, but grouped in new constellations (eg, environment+construction+ technology) • Scorecards on (at least) three levels, but only some metrics are aggregable • ”Without digitization scorecards will die” • Participation, dialogues – cf. Helsingør (”DW but no process), but yet they collaborate…

27. Helsingborg - 2 • ”By describing activities from several perspectives knowledge about the whole increases and deepens. It becomes easier to carry on a dialogue about activities, to prioritize, follow up and evaluate. Balanced steering creates a learning process, where the emphasis is on the future and on development.” • ”All activity areas shall develop balanced scorecards, the contents of which shall be of a general nature and form the basis for comparisons within and between different units and activities over time, where possible. • The scorecards shall be accessible for citizens, employees and other interested parties within accepted ethical norms. • They shall be easy to understand and clear for different constituencies so that each and every one without specific pre-knowledge shall understand their contents. The information in the scorecards shall in a simple explanatory way be possible to trace to their source, in order to achieve optimal credibility.”

28. Helsingborg - 3 • Began with seminars in the committees for welfare, education etc. • Don’t go too fast – important to have many involved • Not much was entirely new. Some were concerned that BSC would duplicate existing quality management projects • Important to include contractors who carry out the actual activities • Balance handbooks: Who measures? How often? How are measures organized and presented? • Politicians first informed, than involved

29. Balanced Steering Subgoal 1. Scorecard proposals - 2002-03-15 Content: * Vision and activity idea / area of activity. * Four perspectives: Economy/Customer/Process/Future * Three indicators per perspective * Explanation: [ CSF-goal-how-indicator ] * Balance handbook: [ CSF-Indicators-aim-method- responsibility-execution-frequency-perspective]

30. Ex. Project organization Balanced Steering SUBPROJECTS • Political steering • group • County council • representatives • * Project leadership (empl) PROJECT TEAM * Project leader * Subroject leaders WELFARE EDUCATION TECHNOLOGY RESOURCE GROUP * Finance. * Personnel. * IT DEVELOPMENT CULTURE

32. Balanserat styrkort - Insatser för äldre Ekonomi / Finans Kommuninvånare / Brukare Framgångsfaktorer: 1. Rättssäkerhet 2. Respektfullt bemötande 3. Delta i den offentliga debatten Framgångsfaktorer: Använda ändliga resurser effektivt Indikatorer: Värde: Mål: 1. Utfall / budget 102 % 100 % 1.1 Prisutveckling utöver budget 0,0 % 0 % 1.2 Volymutveckling utöver budget 0,6 % 0 % Indikatorer: Värde: 1. Andel nöjda kunder - 1.1 Antal inlämnade besvär till Länsrätten - 1.2 Antal bifall i Länsrätten 0 2. Antal klagomål avseende bemötande 47 Helsingborg kännetecknas av hög tillgänglighet. Bostadsområden, närservice, kollektivtrafik, vägar och gator är anpassade för att alla enkelt ska kunna ta sig fram i staden. Även de som har begränsad rörlighet kan delta i samhällslivet. I Helsingborg tar varje invånare ansvar för sig själv. Var och en planerar för sin egen livssituation - och sin egen ålderdom. Målet är god hälsa och eget boende på egna villkor, så länge som möjligt. Vården och omsorgen i Helsingborg kan erbjuda flera alternativ. Man arbetar inte minst förebyggande, för att underlätta ett självständigt liv i eget boende. Alla kan förlita sig på att få omvårdnad när behovet finns och på att få inflytande över vårdens utformning. Framgångsfaktorer: 1. Uppföljning av att beslut genomförs 2. Rätt kvalitet 3. God tillgänglighet 4. Attitydförändring Framgångsfaktorer: 1. Aktiva medborgare 2. Möjliggöra kvarboende i närområdet Indikatorer: Värde: 1. Antal medborgarprojekt 2 2. Andel av befolkningen över 65 år i särskilda boendeformer 5,6 % 2.1 Andel av bef över 65 år med insatser i ord boende 13,9% 2.2 Indikator kopplad till kvarboendeprojektet - Indikatorer: Värde: 1. Andel inkomna handlingsplaner 9,4 % 2 Andel inkomna kvalitetsplaner 0 % 3. Telefoniuppföljning - Process / Arbetssätt Framtid / Utveckling

33. Many Danish local authorities use BSC • One example: Århus, with 7000 employes (400 managers) • ”It’s also a matter of image – to show that old-age care practices modern management.” • The cornerstone is a set of values like dialogue, responsibility, trust and commitment. • Four perspectives: Political, Economic, Environmental, and Employee • 2001 goals focus on user satisfaction, complaints, employee absenteeism and contact time with users. Quarterly measures, to be publicized and benchmarked against peers and other towns like Copenhagen, Odense and Ålborg. • Precise and operational measures are essential, and that they are presented in a ”manager-friendly” way. All employees need knowledge about ideological values and targets.

34. A Norwegian example: 2001 BSC prize to Stavanger • Four perspectives: Users, Processes, Employees, Financial • Surveys of citizens and employees, eg: • Childcare twice a year • Old age homes • Culture surveys among employees • Budget 2002 and business plan 2002-5 use the same structure. IT integrated with other systems. Well received

35. Summary of experiences - 1 • Everyone stresses dialogues and participation • Lots of support from the employees – sometimes more difficult to convince the politicians. (Are clarity and logic antithetic to politics?) • Many reformulate the four perspectives, but most stick rather close to the original ones. Some change their order, eg: Citizens Processes Renewal Finances

36. Summary of experiences - 2 • The four perspectives can also be made to parallel those of a normal business, but adapted to the non-profit character of the public sector: • In this way, the scorecard will help in deciding: • How extensive and expensive activities are justified • To prioritize between users • Boost morale by showing how employees contribute to society. • For all of these, dialogues are essential. Owner Citizens Process Renewal

37. Current concerns in managing the Swedish public sector • Those managing activities must be able to describe what they want • Tasks should be more stable • Need to find good ways to achieve involvement from employees, which is necessary • Responsibility and authority should match • Although money may be short, that should not lead to short-sightedness All of these make many believe that BSC is a timely idea!

38. Ideas for scorecard implementation and use

39. How it is done • A format for discussing expectations and achievements, and creating trust and motivation • Start with interviews and documents - to know where we are • Seminar with management team: • Strategic aims and critical success factors • The logic, ”the story of our success” • Breaking down the scorecards to lower levels • Concurrently, start developing metrics • Consolidate with business plan • Gradually: create IT support structure

40. A scorecard process as a virtuous circle Management Control Systems Strategy Development IT Support and Procedures Learning Organization

41. Breaking the circle Management Control Systems Strategy Development IT Support and Procedures Learning Organization

42. KappAhl as the industry’s leading service company Vision Smart-looking and good value for up-to-datepeople Business idea Finance Customer Employees Process efficiency Develop- ment Area of focus Increased performance per square metre Loyal and satisfied customers Selling and satisfied employees Goal-oriented organization Growth Strategic goals Critical success factors Measures

43. Action plan for one focus area (excerpts) Focus area: Customer Strategic aim: More loyal and satisfied customers Critical Success factors: 1. Expression in shop 2. Active salespeople in every shop 3. Visitors in shop Measures: 1. Customer per visit 2. Winning the company contest (customer contacts) 3. Number of visitors per year Action plan: Done Action Responsible Deadline • 1. Simulate shopping round by second visit in shop • Design checklist together with shop personnel • Introduce way of working • Use digital camera to convey examples Coach  March March-June March • 2. Establish expectations • Ring all shop managers • Push for the competition in weekly newsletter April NN • 3. Joint VIP activity twice a year • Perform evaluation • Test”campaign z” in 5 shops Coach April October

44. Perspective (focus) The logic of a scorecard: a real estate company Value growth Current profits + Financial/ Owners The right customers Customer satisfaction Customers Buy Merge Sell Property management Admin. & IT support Outsourced day-to-day operations Processes Partner development Property portfolio Corporate image Development IT utilization Market positioning

45. Strategy map for a graduate school within a university – initial draft Trustees’ focus University’s standing in society Examination Economic performance Customer focus Academic quality Satisfied students Linking education, research, and community Process focus Assisting students find work; alumni activities Attract students and partners Create and maintain content Environment scanning, positioning, planning… Carrying out education Competence and contacts Identity and image Repertoire and routines Development focus New competence, new partners New systems, new technology New ways of working

46. People Mana- gement (9%) People Satisfaction (9%) Leadership (10%) Processes (14%) Business Results (15%) Policy and Strategy (8%) Customer Satisfaction (20%) Resources (9%) Impact on Society (6%) The measurement model of EFQM Source: Adapted and reprinted with permission from EFQM ”Self-assement Guidelines,” European Foundation for Quality Management (1998)

47. Implementing scorecards Measures in scorecards need to be… • relevant, and logically coherent • accepted and practical • available and accessible • perceived as important and actionable • useful for learning To achieve this, you need: • to build initial scorecards right • cost-efficient systems and software for measuring and reporting • controls and responsibilities that signal that scorecards are important

48. “Measures” • Compact descriptions of observations on something, summarized in numbers or in words: • its attributes, or change during some time period • its performance (potential or actual) • using general measurement units, or a shared language • absolute, or relative to standards • scales may be nominal, ordinal, ratio • should not be confused with evaluation, although it’s built into some measures • often part of a model of causation. • So: it’s important to consider how measures will be used - who’s telling whom? • Aggregation of measurements: not always needed, but it is obviously useful if we can avoid too many different, and know how they relate!

49. Scorecard projects in practice • Take time and effort, and sometimes stop at management team level. • Because of this, commitment and perseverance are necessary. • If done right, create strong commitment among employees – who understand and get involved with the drivers of long-term performance! • Start by identifying dialogues where scorecards will be useful • If there are many users, well-designed IT support will be needed. But it’s the way scorecards are used that will determine their success. • Difference between US and (North-)European approach? • US companies require specific metrics, and stress aggregation • Swedish companies encourage but do not require specific formats Econometric models vs. language for strategic conversations?

50. Conclusions • A simple and elegant idea: a format to discuss any human activity? • Supports most kinds of strategic and operative discussions • Useful in practice, but success depends on how it is done • Reflects the growing role of immaterial assets, and the increasing dependence on employees who share a vision • Scorecards are essentially communication tools. They can be adapted to the different dialogues which are needed in modern organizations. This means that scorecard projects should be carefully tailored to the perceived needs.