How a public sector agency reinvigorated its Balanced Scorecard

A Balanced Scorecard Case Study

November 2004

2GC Limited, 2009. All rights reserved.

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Case Study
is 2GC case study builds upon an earlier research paper called e Design of a Strategic
Management system in a Public Sector organisation that was presented by 2GC at the Fourth
International Conference on Performance Measurement and Management, held in Edinburgh,
20041.

Introduction
is case study concerns a project to design and implement a strategic performance
management system within a medium sized public sector enterprise. It looks at how this UK
Government Agency found it necessary to re-design its failing strategic performance
management system only a year aer its introduction, and how the second attempt appears to
have been much more successful. e two approaches adopted diered in both the structure
of the Balanced Scorecard being designed and in the design methods used. e advantages of
one approach is demonstrated by comparing the two approaches used.
e case study describes the consequences of this work, and oers insights and
recommendations concerning the application of strategic performance management methods
and systems derived from this experience.
ree distinct Generations of Balanced Scorecard design have been identified since the idea
was first widely publicised in the early 1990s. ese Generations are described in more detail
in e Development of Balanced Scorecard as a Strategic Management Tool, a 2GC Research
Paper available from 2GC at http://www.2gc.co.uk/resources-papers.asp.
e case study enables comparison between 2nd and 3rd Generation Balanced Scorecard
applications in relation to their practical value in a public sector organisation. It seeks to
answer the following three questions:
How do the results of a 3rd Generation Balanced Scorecard design process dier from
those of a 2nd Generation design process?
Why would a management team, that had recently attempted to design and implement a
strategic management system using Balanced Scorecard, be persuaded to redesign their
Balanced Scorecard?
Is the 3rd Generation Balanced Scorecard approach more applicable to a public sector
organisation?

Background
e case organisation, the Defence Storage and Distribution Agency (DSDA), is a semiautonomous central government agency working in the UKs defence sector. DSDAs main
activity is the provision of key elements of logistics support to the armed forces in UK and
North West Europe. In 2003, it had a budget of about 250 million a year and about 5,000
employees, of whom over 95 % are civilians. e Agency is a functional element of the
Defence Logistics Organisation (DLO) which in turn is one of the core services comprising
the UKs military capability. However, due to its semi- autonomous Agency status, DSDAs
Board and Chief Executive are accountable for Agency performance directly to the Minister
for Armed Forces.
1 The original PMA case-study was written by William Barney, 2GC Active Management, Dr. Zoe Radnor, Professor Robert
Johnston both Warwick Business School, and William Mahon, Defence Storage and Distribution Agency

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The first attempt

In January 2002, the Board of DSDA took the decision to introduce a Balanced Scorecard
based performance management system for use at management board level. e choice to use
Balanced Scorecard as a framework was influenced by two factors. First, a Balanced Scorecard
based system was already in use at the Ministry of Defence and the DLO. Second, through
benchmarking with the United States Defence Logistics Agency and in particular, the US
DDC (Defence Distribution Centre), DSDA had established that a Balanced Scorecard based
system was also used in equivalent organisations in the USA.
Prior to starting the design project, DSDA paid for members of the project team (drawn from
its Human Resources and Corporate Plans Departments) to receive two days training in
Balanced Scorecard design from an external organisation. is training focused on the design
and implementation of 2nd Generation Balanced Scorecard designs, and accordingly the
team constructed and executed a project plan to create a Balanced Scorecard of this type.
2nd Generation Balanced Scorecard designs focus on the development of a number of linked
strategic objectives that in turn become the basis for the selection of appropriate performance
measures and targets that are used to inform Balanced Scorecard reports made to managers.
Notoriously hard to design, management engagement in the process itself is hard to obtain.
e DSDA project team, working on their first Balanced Scorecard with just two days training
(and a book) to work from, struggled to get good contributions from the management team.
e result was (as is common) a set of strategic objectives that were notable primarily for their
vagueness. is vagueness was thought by the design team to be a direct result of insucient
senior management engagement during the design process used. ree examples of the
original vague objectives are:
Secure new investments
Long-term beneficial partnerships
Embrace diversity
is vagueness made measure selection and target setting dicult: since they could mean
most things to everybody, picking a specific measure was hard to justify. However, the design
was completed, and reporting against the Balanced Scorecard commenced at the October
2002 DSDA board meeting, but at that point the majority of objectives had no measures
defined. e design elements that made up this Balanced Scorecard are illustrated in Figure 1
overleaf.

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Figure 1 e Original DSDA Balanced Scorecard Design.

No useful clarification of the specific meaning of these objectives for DSDA was subsequently
obtained from the management team, which made improvements to the design dicult. By
January 2003 only seven out of nineteen objectives could be reported on some nine months
aer the start of the initiative. e absence of hard data at management meetings
undermined the utility of the device, and so little time was allocated to discussion of the
Balanced Scorecard at management meetings. Frustration mounted with the tool itself and
the lack of tangible benefits arising from the activity associated with it. In January 2003, use of
the system had been put on hold.
Nevertheless, DSDAs underlying need for better performance management information and
tools remained, and the project team and Corporate Plans department who had driven the
initial work were still sure that the Balanced Scorecard could benefit DSDA if only it could be
made to work. Following an internal review and a change in the Board membership, the
Board commissioned a new project in March 2003 to overhaul the existing mechanism with a
view to improving the utility of the system, re-establish its credibility, and incorporate recent
organisation changes to the management of DSDA. A part of this process was the decision to
engage an external party (2GC Active Management) to assist with the redesign.

The second attempt

Discussions with the DSDA team responsible for the first attempt highlighted the following
perceived flaws in the design approach used to develop the original Balanced Scorecard:
1. A tendency to indulge in blue sky thinking which did not reflect the realities facing the
organisation for the foreseeable future;
2. Lack of clear Board level sponsorship;
3. Mixing of long-term strategic issues with operational matters;

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4. Limitations on available internal resources to encourage completion of tasks, keep up the

momentum and ensure buy-in with the widest possible group;
5. Disconnect between the Board who were designing the Balanced Scorecard choosing
objectives and the team responsible for embedding the measurement and reporting
system in the organisation. ere was poor understanding of the meaning of much of
what the Board produced.
e first three of these points are all addressed by the 3rd Generation Balanced Scorecard
approach. It deliberately involves all members of the management team supposed to be using
the resulting Balanced Scorecard in its design. It relies on a series of facilitated workshops,
which uses a pre-determined design framework to force managers to articulate their priorities
for the future, the key objectives that need to be met and how they will be monitored and
measured, all of which is based on consensus decision making. It achieves this by using a
quick design process easy for executive managers to participate in a direct consequence of
the inclusion of an additional design element to the Balanced Scorecard design. is element
the Destination Statement neatly and eectively addresses both the issue of design process
diculty, and that of target setting, two of the issues found with 1st and 2nd Generation
Balanced Scorecard designs.
In June 2003, the re-design project began, using the 3rd Generation design and design
methods. e project involved a set of externally facilitated Board workshops during which
the main strategic choices for DSDA would be clarified by the Executive Management team,
and a series of Implementation Team meetings that would verify and expand on this to
complete the definition of the Balanced Scorecard and its associated work processes. e
process is outlined in Figure 2.

Figure 2: DSDA Balanced Scorecard Design Process

e major dierences between the second project compared to the first are:
Ownership of the design process and content was clearly invested with the Board and
Executive Management team, and the design process involved directly the key people
expected to implement and embed the system in the organisation;
e project was designed to run over a relatively short timescale (three months) to
ensure momentum and impetus;

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Active alignment of all Board members behind the outputs arising from each workshop
through direct follow-up / interview etc.;
A focus on ensuring that the design developed was specifically relevant to the needs of
the organisations leadership team to make sure the design was clearly useful to them
once the design work was complete.
is change in design process had the desired eect the project progressed as planned from
June 2003 with the full involvement of executive Board members in all three workshops. A
fully designed Balanced Scorecard was in use by the Board six months aer the design work
commenced. As Corporate Plans Director, Group Captain William Mahon, observed, we are
now using and benefiting from it. e major outputs from this design process are illustrated
in Figure 3 below.
e focus on getting the management team to directly engage in the design process had some
useful side-eects too, as illustrated by these quotes from DSDA representatives aer the
process was complete:
[e process ] created far more communication between Directors the project was a
catalyst for this
[e process ] helped Board and Implementation Team members have a better
understanding of DSDA business in the round
Assisted in managing some Defence Supply Chain (one of DSDAs key stakeholders)
expectations.
ese illustrate some of the indirect, but never the less important, benefits of the 3rd
Generation Scorecard approach adopted.

Figure 3 Major outputs from the DSDA 3rd Generation Balanced Scorecard project

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It could be argued, therefore, that the revised 3rd Generation Balanced Scorecard methodology,
and use of external intervention to facilitate the organisation through the process, produced a
DSDA Balanced Scorecard that could more eectively support the Board in driving the
organisation forward. e next section will discuss this point in more detail.

Discussion
In this section, we aim to place the case study in the context of wider Performance
Management theory and thinking. Specifically, this discussion use the case study to illustrate
consideration of the following questions:
How do the results of a 3rd Generation Balanced Scorecard design process dier from
those of a 2nd Generation design process?
Is the 3rd Generation Balanced Scorecard approach more applicable to a public sector
organisation?

3rd Generation versus 2nd Generation

ere were considerable uncertainties and even concern over using a Balanced Scorecard
approach within the Board of DSDA, and these increased following the failure of the first
project to create one. Persuading the management to participate in the redesign was a critical
enabling step for the project to succeed. is was achieved by illustrating to them the plan for
the second Balanced Scorecard design project. e plan was based on a well-defined and
disciplined process facilitated by experienced external experts, whose role was as much to
ensure that momentum was maintained and the project finished on time, as it was to
contribute best-practice advice.
Redesigning the Balanced Scorecard as opposed to
abandoning the tool due to the initial frustration with its utility, not only salvaged the initial
investments made in a new approach to performance management, but also strengthened the
Boards learning about strategic control. It was important to highlight at this early stage why a
performance management solution had to be sought in the first place the need for this
increased control of the organisation had not diminished during the time of developing the
first Balanced Scorecard.
However, persuading the executive management team to start the project was not enough for
success. eir interest and support for the work needed to be maintained across the project,
such that when it finished they would be inclined to use it in practice.
e 2nd Generation design processes necessarily starts with having to address the dicult and
potentially contentious issue of determining the most important strategic objectives for the
organisation. e activity of making these choices of most important objectives is dicult,
and so is oen avoided in one of two ways. One option is to select vaguely worded objectives
(to which all can subscribe without the need to make actual choices). A second is to delegate
the decision making process outside of the management team itself (e.g. by using a Consultant
to make the decisions, which are then approved by the management team). Either option (or
both together, as happened in the first DSDA design process) allows the design process to
complete more quickly, and requires minimal participation from the leadership team. e
consequence is that vagueness leads to major issues concerning measure definition and target
setting. Disengagement during the design process also increases the risk of the management
team rejecting the resulting tool as not being useful. We see both these failure modes
appearing in DSDA aer the design of the first (2nd Generation) Balanced Scorecard.
By contrast, the 3rd Generation Balanced Scorecard design process starts with the need to
develop a clear articulation of the hoped for future state of the organisation, documented in
the device called a Destination Statement. Most management teams find the development of a

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Destination Statement easy to do (as it describes what managers want or need to achieve,
rather than how it will be done). It provides a clear consensus based fixed point in the future
that the management formally agrees to reach before having to resolve the hard questions
about near-term priority goals. is makes the opening activities in the design project
relatively easy for managers to engage in. e activity tends to build co-operation and
consensus rather than promote turf-wars and divisions over most important objectives. An
excerpt from DSDAs Destination Statement is shown below:

Figure 4 Excerpt from DSDA Destination Statement

In the case of DSDA, a high degree of consensus was reached within the Board (many of
whom had never worked with each other before these workshops) concerning the Destination
for DSDA by 2008. is had two beneficial eects. First, the Destination Statement laid the
groundwork for a subsequent set of meetings to address the issue of strategic objectives and
the choices they required. Second, it strengthened and reinforced the commitment made to
the decision to re-design the Balanced Scorecard, by providing the leadership team with quick
positive engagement in the design process thus it protected the project as a whole. Further,
when it came to the meetings to choose the near-term strategic objectives, the management
team could resolve disagreements by referring back to the previously agreed end-point: this
proved very valuable in maintaining a consensus while the hard choices about priorities were
being made. Figure 5 shows the DSDA strategic objectives selected in graphical format.
Comparing the objective names from first and second attempts, the dierence in some ways is
small. But the understanding and clarity of the underlying objective definitions, as well as the
extent of active support for the choices made on the second diagram, is much greater.

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Figure 5 DSDA Strategic Objectives (graphical summary)

A second key benefit observable between the two design methods concerns measure selection
and target setting. One of the reasons why measures and targets were not set for so many of
the original DSDA objectives was that those charged with determining the measures and
targets really didnt understand what the very vague objectives chosen meant. If you are not
sure what the objective means within the specific context of the organisation, working out
how to measure progress towards it is hard, setting a meaningful target for how much of the
measure is required, harder still. All that happens when they are presented back to the
management team for approval is that whatever measures and targets are chosen, debate
ensues about what the original objectives really meant, oen concluding that the measures /
targets chosen are wrong but without new insight into what the right ones might be. By
contrast, the development of 3rd Generation Balanced Scorecards, not only support a more
focused choice of objectives (thanks to the context provided by the Destination Statement),
which allows for easier measure selection, but the Destination Statements specific description
of what will have happened a few years into the future aids target setting too.

Public sector applicability

e case study illustrates that the Balanced Scorecard can have equal value as strategic
management tool in the Public sector as it has had in private sector. Despite the rigorous lists
of targets passed down from Central Government, for example, Key Targets in the NHS and
Continuous Performance Assessment (CPA) items for local authorities, there is still a
requirement and desire by management to agree their own priorities within these and to add
other items based on local strategic factors. e 3rd Generation Balanced Scorecard approach
supports this requirement by enabling public sector management teams to combine these
various factors into a coherent representation of what they would like their organisational unit
to look like in the future, the Destination Statement. is degree of clarity allows the mangers
to translate the future goals into shorter-term objectives, metrics, and targets. is was also
the situation for the board at DSDA. Whilst having objectives to meet for the Secretary of

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State and the DLO/MOD, DSDA also had many other priority areas to address. A 3rd
Generation Balanced Scorecard, complete with Destination Statement, more relevant Strategic
Objectives, measures and targets allowed them to see the whole picture and manage more
eectively by making active use of the performance data generated.

Conclusions
Implementing strategy is hard, with or without a management framework. e 3rd Generation
Balanced Scorecard provides the type of strategic control framework suggested as best
practice in the academic literature (e.g. by Muralidharan in 2002). Having relevant metrics for
priority strategic objectives can usefully inform managers of their progress and allow
corrective actions or improvement plans to be initiated as required. e need to communicate
information and receive feedback comprising of a mixture of financial information and
measures of performance or value, such as those pioneered by Frederick Winslow Taylor in
the early part of the 20th Century (Huczynski & Buchannan, 1985), has always been an
essential element of commercial activity. A similar demand for information and performance
related feedback has become more pronounced in public sector organisations in recent years.
Ecient performance management relies on clear communication of the strategic objectives
to be pursued by an organisation, and the provision of suciently relevant feedback to enable
public sector managers to manage toward the achievement of those organisational goals. e
introduction of tools like e.g. Balanced Scorecard, EFQM Excellence Model, and Public
Service Excellence Model, clearly has the potential to support these varying internal and
external communication needs and support strategic performance management. e way
they are designed and applied, however, has a significant impact on their eectiveness. e
critical success factors that these tools rely upon, including use of open communication and
participative management styles are easily forgotten if they are not suciently considered
during the design and implementation of the approach used.
e 3rd Generation Balanced Scorecard represents the current state of the art in the processes
needed to choose strategic performance management metrics accurately and eciently.
Further, the strong relevance and ownership developed through the design process used by the
3rd Generation Balanced Scorecard ensures that managers are more likely to use the
information the Balanced Scorecard provides.
In this case study, it is clear from the experiences at DSDA that the first attempt at introducing
a Balanced Scorecard based strategic performance management system failed due to problems
inherent in the type of Balanced Scorecard being introduced, problems that were
compounded by the inexperience of the team charged with the design activity. When DSDA
moved to use the more modern 3rd Generation Balanced Scorecard design, and obtained
design and implementation advice from experienced consultants, the results were much better.

More Information
e Resources section of the 2GC web site contains other 2GC documents relating to the
Balanced Scorecard and modern 3rd Generation Balanced Scorecard and also
recommendations for books and articles on the subject and links to useful web sites. For
information on 2GCs services including our consultancy and training programmes, visit our
services section of the web site or email Services@2gc.co.uk

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About 2GC
2GC is a research led consultancy expert in addressing the strategic and performance
management issues faced by organisations in today's era of rapid change and intense
competition. Central to much of 2GC's work is the application of 3rd Generation Balanced
Scorecard, an approach to strategic implementation, strategy management and performance
measurement.

References
Cobbold, I.C. and Lawrie, G.J.G. (2002) e Development of the Balanced Scorecard as a
Strategic Management tool, Proceedings PMA2002, Boston, MA, USA May 2002
Huczynski, A and Buchannan, D, (1991), Organizational Behaviour; Second Edition, Prentice
Hall, London
Muralidharan R. (1997). Strategic Control for Fast-moving Markets: Updating the Strategy and
Monitoring the Performance, Long Range Planning, Vol.30, No.1, pp.64-73
Shulver M., Antarkar, N. (2001), e Balanced Scorecard as a Communication Protocol for
Managing Across Intra-Organizational Borders, Proceedings, 12th Annual Conference of the
Production and Operations Management Society, Orlando, Florida, USA.

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Appendix
e three key components of 3rd Generation Balanced Scorecard are as follows:

Destination Statement:
Used to build management consensus, a Destination Statement is a concise but detailed
description of what the organisation looks like at a specified point in the future (typically 3-5
years). Once agreed, the document provides a single basis for tailored messages to support
eective strategic communication in- and ex-ternally as well as up and down the
organisational hierarchy.

Strategic Linkage Model:

Used to establish what are the key short / medium term activities that are required to deliver
the key short / medium term outcomes. ese key activities and outcomes are known as the
organisations Strategic Objectives and are organised in a strategic linkage model to identify
causal relations between various objectives (if we do X, we should achieve Y; achieving Y will
contribute to achieving Z, etc.)

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Measures and Targets:

Used to track the achievement of the objectives specified in the strategic linkage model

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