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This report examines how the Balanced Scorecard could be implemented in XXXXX Council, and what the benefits and problems of implementing it would be. The report also outlines what complimentary processes could be implemented to support the Balanced Scorecard. Explicit use is made of the lessons learned from the Implementation of the Balanced Scorecard at Halifax PLC.
The Balanced Scorecard has the potential to provide numerous benefits to XXXXX Council although the Implementation of the Balanced Scorecard would be complex and would face several difficulties.
The Council should pilot the BSC in one service area and then assess its suitability to roll out to the rest of the Council. If the BSC is implemented it should be reviewed on a regular basis to ensure it remains fit for purpose.
2.0 The Balanced Scorecard
The Balanced Scorecard (BSC) was developed by Kaplan and Norton as a performance management tool and was intended to assist organizations look beyond financially weighted Performance Management Systems. Their underlying premise was ‘what you measure is what you get’. (Fenton–O’Creevy, 2003, pp 14-7).
The intention of the BSC was to include other indicators that contribute towards strategic success into the organizations performance management system. Kaplan and Norton saw the over reliance of financial indicators as too simplistic a view of organization performance.
By including financial and non-financial indicators, organizations can manage the inter-relationships between activities more effectively. Kaplan et al explained that the performance indicators included in the BSC needed to be linked to strategic goals (Fenton–O’Creevy, 2003, pp 14-6). This ensures activities are aligned with strategic goals and helps employees see how they ‘fit in to the bigger picture’.
Norton and Kaplan advised that four different perspectives should be included in the BSC. These perspectives are, innovation and learning, internal processes, the customer and the financial perspective. Norton and Kaplan advised these perspectives should be modified based on the needs of the organization
Halifax articulated the relationship between the different segments of the scorecard well in their implementation of the balanced scorecard i.e. the Z approach ‘the right people (innovation and learning), doing the right things (processes) making the customer happy (customer perspective) generating income (financial perspective).
Fig 1.0 illustrates how the relationship between the perspectives and how they should align with strategic goals.
The balanced scored card has proved popular in the private sector because it helps an organization focus on some of the critical success factors which lead to financial performance.
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I am now going to examine how the BSC could be implemented in a Local Authority setting, specifically XXXXX Council.
Fig 1.0: Norton and Kaplan’s Four Perspectives
3.0 Implementing a BSC in XXXXX Council
I shall begin by examining the Councils Strategy because this will form the basis of the BSC.
I shall then examine what performance indicators the Councils is legally bound to report on because these may also need to be included in the BSC.
Once I have established the Councils strategy and arbitrary indicators, I shall look at the needs of the stakeholders that need to be taken into account when designing the BSC.
I will then move onto designing a BSC and examine how indicators should be chosen for inclusion.
3.1 The Councils Strategy
The councils Strategy is outlined in its vision XXXXXX:
The Council has broken down this strategy into ten high-level objectives and a number of high-level metrics to assess the progress of these objectives. Fig 1.2 illustrates this pyramid of purposes.
Fig 1.1: XXXXX Councils Pyramid of Purposes.
The Vision XXXXXXX is accompanied by high-level objectives. An example objectives is:
The associated metric for this objective is ‘the number of customers who advise they receive a satisfactory service (via market research) and 450 employees attending defined training by 2010’.
This metric appears inadequate as there are 12,000 employees in the council and the chosen training (alone) would probably not achieve the objective. The BSC design should aim to strengthen these metrics by measuring activities, which have a greater chance of delivering the objective (but may be harder to measure).
The BSC design would need to be aligned with this pyramid of purposes.
3.2 The Existing Performance Management System
For the BSC to be successful in XXXXX Council it needs to include elements of the existing performance management system. This is because the Council is legally bound to report on certain indicators.
The main indicators, which the council measures are, Best Value Performance Indicators (BVPI’s), the Electronic Government Statement (IEG), the Annual Efficiency Review (AER), Public Service Agreements (PSA), Quality of life Indicators (QoL) and any other local Indicators which managers may deem necessary.
Local Authorities must report on Best Value Performance Indicators by law (Local Government Act 1999), whilst local indicators, IEG, QoL, PSA and AER all contribute to the Councils Comprehensive Performance Assessment (CPA). The CPA is conducted by the national Audit Commission and is one of the ultimate drivers of Local Authority activity. An ‘excellent’ performance review means greater freedom from Government scrutiny; increased grants from the Government, local and national recognition from peers and the elected councilors have a benchmark to voice their success to the electorate. A poor performance review means the exact opposite.
A key question will be, should the BSC incorporate the existing arbitrary indicators or should the BSC be a separate performance framework working alongside the existing framework.
If the existing indicators are included then managers and employees may develop ‘indicator overload’.
If the existing indicators are not included then the corporate performance system may become confusing. The lessons of the Halifax BSC project demonstrated that senior managers have a tendency to concentrate on the more imminent indicators, which in their case were the financial indicators. In a Local Authority setting managers would probably concentrate on the existing arbitrary indicator to the detriment of any other indicators.
In both cases the BSC risked becoming an unbalanced scorecard. With this in mind, I believe the arbitrary indicators should be included.
Government Indicators can be split between the four XXXXX perspectives. They fit quite comfortably into these four quadrants because the Government deliberately selected ‘balanced indicators’ when designing the performance framework.
To mitigate the risk of ‘indicator overload’ the design will need to distribute indicators to the appropriate level of the management hierarchy.
3.3 Key Stakeholders
Freeman defines stakeholders as ‘Any group or individual who can affect or is affected by the achievement of the organizations objectives’ (Stapleton T, 2003, pp1-5). The complexity, nature and variety of services provided by Local Authorities means that there are many different stakeholders. I have concentrate here on what I consider are the main stakeholders.
3.3.1 External Stakeholders
The Councils customers can be split into two main groups, taxpayers and service users. Service users are anybody who use council services, and taxpayers are the people who provide the income enabling the services to be provided.
Anecdotal evidence suggests that service users want quality services, which are easily accessible, and delivered in a timely manner. These customers cost the council money but are one of the primary reasons for its existence.
Anecdotal evidence suggests taxpayers want value-for-money services. They want to know their money is being spent wisely.
Customers are often both service users and taxpayers but more often than not, people who use the most resources tend not to be taxpayers. This can lead to conflict between the two groups.
The BSC would need to incorporate indicators, which meet both sets of customers needs. Service-user requirements would sit comfortably under a customer and process category whilst taxpayers needs under a process category i.e. more efficient processes.
The Government is a primary stakeholder because it is (arguably) whom the Local Authority is accountable to. The Government provides revenue, which finance services. The Government is accountable to service users and taxpayers because they are citizens. This means the Government has a vested interest in ensuring quality services are provided in a value for money manner.
The Government has set an agenda to achieve this by introducing it’s own performance indicators. These indicators form the basis of a Comprehensive Performance Review, which Local Authorities are assessed against.
The indicators set by the Government are varied and could form the basis of a balanced scorecard in themselves. They range from SMART indicators based on customer perspectives, efficiencies (process and financial perspectives), financial perspectives and an innovation and development perspective.
Partner Agencies such as the Health Service and Local Education Authorities work closely with the council to m