Building a Strategic Balanced Scorecard
The balanced scorecard has been said to be among the most important tools in business management (Kaplan, R.S (2003), PR Newswire (2003).The usage of balanced scorecard by several companies has led to increase in profitability, productivity and efficiency.
The strategic balanced scorecard has been used by organizations to balance all aspects of organizational practice by providing a framework for effecting change and translating strategy into action.
It has for sometime gained acceptance as a way of turning around businesses which were at one time in the brink of collapse (Kerr, D. L. 2003). The scorecard has facilitated the translation of strategy into action (Kaplan, R. S. , and D. P. Norton 1992). In corporate organizations, is the case with Saatchi and Saatchi, the scorecard has helped many companies out of crisis. In the nineties this organization called Saatchi and Saatchi was experiencing many problems associated with poor growth.
This was due to a recession that followed the rapid growth through acquisitions in the 1970’s and 80’s. Particularly in 1995 this organization was almost collapsing due to bankruptcy.
To avert the collapse the agency started with strategy reformulation and making some structural changes that began with bringing onboard new personnel at the top to the organization. Bob Seelert who formerly worked at General Foods was appointed as the new chairman and Kevin Roberts as the new chief Executive, while both the Saatchi brothers left the company. With the new leadership in place several financial goals were developed. These goals were: i. Growing the company’s revenue base better than the market. ii.
Converting 30 percent of that incremental revenue to operating profit. iii. Doubling the company’s earnings per share. These goals were given as a promise of performance to the shareholders and thus had to be achieved. To achieve them, the leadership of the organization identified ways in which the goals could be achieved and in doing this it was found that all units or locations had different visions. For smooth accomplishment of the goals, all units had to have a common vision. A management tool had to be devised to help communicate and operationalize the new vision.
Having a common vision was perceived to aid in achieving of one of the main objectives which was to position the agency at the top rank of the advertising industry. ANALYSIS The importance of measuring strategy and operational plans cannot be overemphasized (Green et al. 2002). After setting up financial/growth goals the company’s senior team focused and had to re-prioritize their investment plans for the different units. First the units had to be categorized according to their size in terms of the number of employees and also revenue contribution. Using the above criteria three categories were created.
These were the ‘lead’, ‘drive’ and ‘prosper’. For each category different strategies were formulated. The ‘prosper’ agency is the one with less than 50 employees and is less likely to become a huge agency. Most agencies fall into the ‘prosper’ category. The new strategic focus for this category was that units in it were expected to achieve high margins despite their failure to grow significantly. The other category is the ‘drive’ agency which is estimated to have between 50 and 150 employees. The strategy adopted for it was that it had to maintain or slightly grow its revenue base, not leaving out growth in margins.
The ‘lead’ agency is the one in which majority units are located and is the largest with examples being the UK, New York and China. This agency was expected to post rapid growth and also is the one where the biggest share of investment would be allocated. Apart from strategies directed to the different agency categories, Saatchi and Saatchi adopted other strategies relating to a customer perspective. One was paying close attention to the agency’s core client base. This strategy calls for treating the customers well in order for them to love the company i. e.
to infatuate them. For this Saatchi and Saatchi came up with what they called are having ‘permanently infatuated clients’ or PIC for short. The other strategy which was encouraging employees to come up with big ideas which were referred to as ‘big fabulous ideas’ or BFIs. The BFIs were supposed to be quality ideas that could change businesses, brands and reputations to Saatchi and Saatchi’s clients. CONCLUSION The strategy for the ‘prosper’ agency of achieving high margins was possible through treating the few customers excellently i. e. making them infatuated.
Also the employees in this agency were given opportunity to give quality ideas which were supported by financing from the top management. The ‘drive’ agency charged with responsibility of maintaining or slightly growing their revenue base and growing their margins also achieved their goals through being supported financially by the top management. The agency given the ‘lead’ status which comprised the largest revenue base, such as the UK, New York and China received the lion’s share of investment. As a result this category grew rapidly with the scorecard as the way through which strategy was translated into action within Saatchi and Saatchi.
Key success was achieved through the absolute commitment of the most senior management that gave the required resources. EVALUATION For the case of Saatchi and Saatchi Company a set of two strategies were meshed together. These were the financial and customer perspective strategies which worked together reinforcing one another. The reasons which support this position are that in the goal of generating more revenue, more attention was paid to the clients who gave large earnings. On the other hand the goal pf converting 30 percent of the incremental revenue to operating profit was meant to finance changes in the organization.
This was through encouraging employees to come up with quality ideas, by giving them incentives and rewards for quality ideas. Finally, the financial goal of doubling earnings per share was achieved through implementation of PICS’ (permanently infatuated clients) hence increasing growth and achieving high margins from clients who love and stick to the company. Also the financial goal of encouraging development of big ideas which could transform business, brands reputation of the company’s clients, was related to the customer perspective strategy. Reference:
Business Intelligence: Building a Strategic Scorecard. Saatchi and Saatchi Complimentary Case Study. Available at http://www. business-intelligence. co. uk/PDFdownloads/strat_bsc/Saatchisr. pdf. Accessed on 20. 05. 07. Green, M. , J. Garrity, A. Gumbus, and B. Lyons (2002). “Pitney Bowes Calls For New Metrics: The Company Used a Balanced Scorecard to Manage Performance and Increase the Bottom Line,” Strategic finance. Kaplan, R. S. , and D. P. Norton (1992). “The Balanced Scorecard: Measures That Drive Performance,” Harvard Business Review 70(1), 71-79.
Kaplan, R. S. , D. P. Norton, and M. Witzel (2003). “Great Believers in Balance: Guru Guide Robert Kaplan and David Norton,” The Financial Times, August, 11. Kerr, D. L. (2003). “Accountability By Numbers: How the Lone Star State’s Auditor Introduced a Balanced Scorecard Management System,” Journal of Accountancy 195(6), 61-70. PR Newswire. (2003). “Got Leverage? September-October Issue of Harvard’s Balanced Scorecard Report Explores Strategic Lock-In, Strategic IT Agility and the Balanced Scorecard,” PR Newswire, September 16, 1.