Tài liệu IN BSC Best Practices pptx

Balanced Scorecard Best Practices: Understanding Leading
Measures
Author: Bill Barberg
One of the concepts in the Balanced Scorecard methodology that appeals to many executives or other
business decision-makers is the idea of having “leading measures.” After all, nobody wants to be
compared to a driver who can only navigate by looking through the rearview mirror. When Dr. Robert
Kaplan and David Norton introduced the Balanced Scorecard (BSC) over a decade ago, part of the
“balance” that they introduced was balancing the traditional financial measure, which they
characterized as lagging measures, with measures that gave a better indication of likely future
performance—leading measures.
The Context: Understanding Balanced Scorecard Terminology
Before going into details on the concept of leading measures, it is helpful to understand a few key
Balanced Scorecard terms. (After all, one major benefit that Kaplan and Norton have touted is the
establishment of a standard set of terms and definitions that can allow people to communicate more
effectively with regard to strategy execution and performance management.) Some of the most
important terms are perspectives, objectives, measures, targets, initiatives, and cascading.
The Balanced Scorecard methodology stresses that objectives and measures from multiple
perspectives should all be considered. The classic perspectives for for-profit businesses are Financial,
Customer, Internal Operations/Processes, and Learning and Growth (which focuses on human capital,
technology and organizational culture—the intangible assets that create value). By looking carefully at
all four perspectives, organizations can focus on both the causal drivers of performance and the
outcomes.
In the Balanced Scorecard, the strategic objectives (often just referred to as objectives) are the stars
of the show. Objectives often consist of a verb-adjective-noun phrase. For example, an objective may
be something like “Grow International Sales” or “Build Deep Client Partnerships.” These objectives
should be linked in cause and effect chains that cross the multiple scorecard perspectives—graphically
depicted in what has become known as a strategy map. The following diagram shows objectives linked
in cause and effect chains that are part of a strategy map for a software company based in the U.S.
that wants to execute a strategy of growing international sales.
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Figure 1 - Part of a Strategy Map for a Software Company

The measures are used to monitor progress toward accomplishing the objectives. Measures don’t
stand alone. They belong to specific strategic objectives. In the prior example, the measure for Grow
International Sales could be “$ in International Sales” and the measure for Local Sales & Support
could be the “Number of Trained Resellers outside the U.S.” Targets are established for the measures,
along with the logic for color bands so reports can easily show if a particular measure is red, yellow or
green (or perhaps some other color, depending on the logic that is used.) There are often multiple
targets for different time horizons. For example, the target for international sales may be $10 million
for the third quarter and $12 million for the fourth quarter of the current year. For the fourth quarter,
red may be defined as less than $11 million and yellow as $11 million up to $12 million in international
sales for that quarter.
Strategic initiatives (often just called initiatives) are the specific projects, outside the normal activities
of the organization, that are undertaken specifically to help accomplish the strategy or close the gap
between a measure and the target. Initiatives almost always have start dates and end dates and a
focus on accomplishing something that will support the accomplishment of the particular strategic
objective as measured by that objective’s measure. For example, in the case of the software company
wanting to grow internationally, an initiative might be something like, “Develop a list of possible
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resellers outside the U.S.” In contrast, something like “Pursue partnering opportunities” is too vague
to be a good initiative, and it is not likely to have a start and end date. (That could be an objective—
perhaps on a supporting scorecard for the business development department—and it would then need
to have a measure associated with it.) On the other hand, the details surrounding each of the on-
going sales and marketing activities to recruit new partners are probably best treated as tactical or
operational information rather than a series of strategic initiatives. If too many operational tasks get
treated as strategic initiatives, the clutter can diffuse the focus on the critical strategic initiatives.
The concept of cascading involves taking the top level organizational strategy, as clarified by the
objectives on the strategy map, and rolling that down to lower levels of the organization, such as
business units, divisions, departments or individuals. The process of cascading is not just a matter of
pushing the same measures down to other parts of the organization. Instead, the same type of cause
and effect thinking that is used to create the strategy map should be used to link the objectives from
lower parts of the organization to the higher level objectives on the top level scorecard. In the above

software company example, the business development department may have objectives for
participating in foreign trade shows or for having meetings with the executives of potential reseller
partners in foreign countries. The IT department may have objectives relating to the infrastructure
needed as prerequisites for deploying a secure partner extranet. Those objectives, if successfully
accomplished, would advance the execution of this company’s strategy by enabling improved
international channel support, and therefore contribute to the financial objectives of growing
international sales and generating sustained profits. The cascaded objectives should have tight cause
and effect alignment with the top-level objectives, but they are not the same objectives, and they are
not likely to have the same measures.
If we think of the causal links on the strategy map as two-dimensional (2-D), because they can be
represented on a 2-D sheet of paper, then we can think of the cascaded cause & effect relationships
as three-dimensional (3-D).
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Figure 2 - Cascading a Strategy Map
Leading Measures
Now that we’ve defined some context and terminology, let’s focus on the concept of leading measures.
Leading measures are not a crystal ball. Nor should they be confused with a forecast. Somebody’s
prediction about next month’s sales is not a leading indicator. It is just a prediction about the future
value of a lagging indicator. In practice, there are two types of measures that are often characterized
as leading indicators. The first is a leading indicator with regard to accomplishing a specific objective.
For example, if a manufacturer of electronic components has an objective of reducing turnover in their
customer support staff, then a leading measure for that objective might be the percent of employees
in the customer support department who indicate that they would recommend to a friend that they
should try to get a job in this organization’s customer support department. If people are
recommending that their friends try to get a job similar to their own, it is a good indicator that the
employee is happy with the job and company and is not about to jump ship. Therefore, this would be
a good leading indicator for the objective of reducing staff turnover. A lagging indicator for this
objective might be the actual turnover in the customer support department. As it relates to that
specific objective, actual turnover is a measure of what has already occurred, so it is looking in the
rearview mirror.

However, if you step back and look at the full cause and effect chain, the objective of reducing
turnover in the customer support department is an important causal driver of improving the quality of
service and expertise that they provide to their customers. The strategy is to win customer loyalty and
improve profit margins by competing on superior service instead of price. The strategy map visually
represents key causal relationships in the strategy.
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Figure 3 - Part of a Strategy Map for a Manufacturing Company
If the hypothesis is true that reducing staff turnover will improve the quality of service and the degree
of expertise that they can offer their clients, and that offering that improved support will result in
greater customer loyalty and higher profit margins, then it is perfectly reasonable to think of actual
turnover in the customer service department as a leading measure with regard to the outcome
objectives of improving customer loyalty, sales, and profit margins.
Therefore, depending on which context we are looking at, actual employee turnover could be either a
lagging indicator (with regard to the objective it is associated with) or a leading indicator (with regard
to the whole cause and effect chain). It would be a mistake to waste too much time debating whether
any one measure is really a leading indicator or a lagging indicator. That misses the underlying
principles. An important principle of the Balanced Scorecard methodology is to get people to think in
terms of cause and effect relationships, and to pay close attention to both the cause and the effect.
Another important principle is to focus on the critical few objectives and measures, and to have the
appropriate people in each part of the organization looking at the objectives and measures that they
can influence or that provide them with valuable insights about their situation and their contribution to
the higher-level objectives. An implication of these principles is that not everyone needs to be looking
at the same measure. In this specific example, the desire to keep the measures to manageable level
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