How the Balance Scorecard Approach Compares to Policy Governance

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How the Balance Scorecard Approach Compares to
Policy Governance
Presented by David Mustine

• IPGA 2007 Annual Conference
• Alexandria, VA
• June 23, 2007

Policy Governance is the registered service mark
of John Carver.
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The Balanced ScorecardRobert S. Kaplan David
P. Norton

• This presentation will
• Provide general understanding of Balanced
  Scorecard
• Compare Balanced Scorecard to Policy Governance
• Demonstrate why Policy Governance is superior to
  Balanced Scorecard in the field of governance

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The Balanced ScorecardRobert S. Kaplan David
P. Norton

• Developed early 1990s
• Initial purpose improve performance measurement
• Discovered effective in strengthening strategy
  implementation
• Now propose to use it in governing

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The Balanced ScorecardRobert S. Kaplan David
P. Norton

• 4 barriers to effective strategy implementation
• Vision and strategy are not actionable
• Strategies are not linked to departmental, team,
  and individual goals
• Strategies are not linked to long and short-term
  resource allocation
• Feedback is tactical, not strategic

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The Balanced Scorecard3 Key Elements

• Measurement system
• Strategic management
• Communication tool

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The Balanced ScorecardFour Perspectives

• Financial
• Internal processes
• Learning development
• Customer

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Mission describes the broad, fundamental
purpose for the organizations existence, the
ultimate result it hopes to produce.
If we succeed, how will we look to our
financial donors?
To achieve our vision, how must we look to our
customers?

To satisfy our customers, financial donors,
and mission,what business processes must we
excel at?
To achieve our vision, how must our people
learn, communicate, and work together?
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Alignment

• Corporate strategic themes
• Balanced Scorecard
• Business unit strategic initiatives
• Personal objectives

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Mission
Core Values
Vision
Strategy
Balanced Scorecard
Strategic Initiatives
Personal Objectives
Satisfied Customers
Delighted Donors
Effective Processes
Engaged/Equipped Employees
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5 Major Responsibilities of a Board (Kaplan
Norton)

• Ensuring integrity and compliance
• Approving and monitoring enterprise strategy
• Approving major financial decisions
• Selecting and evaluating executives
• Counseling and supporting the CEO

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Integrity and Compliance (Kaplan Norton)

• Ensure reporting and disclosure reflect
  underlying organization performance
• Monitor risks and risk management processes
• Make certain there are adequate internal controls
• Assure operating ethically
• Verify that laws and regulations not violated

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Approving and Monitoring Enterprise Strategy
(Kaplan Norton)

• Ensure plans result in creation of LT value
• Approve or reject major mgmt decisions
• Must understand and approve corp. strategy
• Continuously monitor strategy execution and
  results

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Approving Major Financial Decisions (Kaplan
Norton)

• Ensure financial resources are used efficiently
  and effectively to achieve strategic objectives
• Approve annual operating and capital budgets
• Authorize major capital expenditures, new
  financings and major mergers/acquisitions/divestit
  ures

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Selecting and Evaluating Executives (Kaplan
Norton)

• Hires, evaluates performance and determines CEO
  compensation
• Approves hiring of other senior executives
• Assure succession plan on entire executive team

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Counseling and supporting the CEO (Kaplan
Norton)

• Individual board members use specific knowledge
  to provide CEO and executive team guidance

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Governance Scorecards (Kaplan Norton)

• Enterprise
• Contains strategic objectives, performance
  measurements, targets and initiatives
• Plays central role in governing provides
  financial and non-financial information essential
  to performance oversight
• Executive
• Provides objective assessment of executive
  performance

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Governance Scorecards (Kaplan Norton)

• Board
• Enterprise financial perspective
• Stakeholder perspective
• Internal board processes
• Learning and Development (knowledge, information
  and culture)

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Board
Governance Processes
ENDS
Bd./CEO Linkages
Strategy
CEO
Balanced Scorecard
Executive Limitations
Strategic Initiatives
Personal Objectives
Satisfied Customers
Delighted Donors
Effective Processes
Engaged/Equipped Employees
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3 Major Responsibilities of a Board in Policy
Governance

1. Connect with and understand ownership
   expectations
2. Develop and express board expectations in written
   policies
3. Assure owner expectations are met through
   rigorous monitoring

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Integrity and Compliancein Policy Governance

• Integrity accomplished through policies
• Compliance is confirmed through monitoring

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Approving and Monitoring Enterprise Strategy in
Policy Governance

• Board establishes ownership expectations through
  ENDS
• Enterprise strategy is a management tool

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Approving Major Financial Decisions in Policy
Governance

• Board may reserve some major financial decisions
  for itself (e.g. merger)
• Operating and capital budgets are management
  tools
• Carefully designed financial executive
  limitations policies coupled with monitoring
  effect strong method of control

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Selecting and Evaluating Executives in Policy
Governance

• Board hires and evaluates only the CEO
• Clarity of accountability
• Clarity of board vs CEO roles
• Achievement of ENDS and avoidance of violating
  Executive Limitations comprise CEO evaluation

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Counseling and Supporting the CEO in Policy
Governance

• Board never advises
• Individual board members urged to advise only if
  asked and then make sure it is not confused with
  board decisions

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Governance Scorecards Compared to Policy
Governance
Ends
Enterprise
Executive Limitations
Executive
Board/CEO Linkages
Board
Governance Process
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Discussion

• In what ways do you see Policy Governance
  providing a balanced perspective to the board?
• Could Balanced Scorecard data be used in
  monitoring reports?
• Policy Governance starts with owners perspective
  with which perspective does Balanced Scorecard
  start?

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Works Consulted

• Carver, John. Boards That Make a Difference. San
  Francisco Jossey-Bass, 2006, 3rd ed.
• Robert S. Kaplan and David P. Norton, The
  Strategy-Focused Organization. Boston Harvard
  Business School Press, 2001.
• Robert S. Kaplan and David Norton, The Balanced
  Scorecard. Boston Harvard Business School Press,
  1996.
• Robert S. Kaplan and David P. Norton, Aligning
  the Board of Directors, The Balanced Scorecard
  Report. Balanced Scorecard Report, March-April
  2006.
• Niven, Paul R. Balanced Scorecard Step-by-step
  for Government and Nonprofit Agencies. Hoboken,
  NJ John Wiley sons, Inc., 2003.
• The authoritative website for the Policy
  Governance model can be found at
  www.carvergovernance.com.
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