The balanced scorecard system for ETC

It was long felt that the services offered by the Employment and Training Corporation (ETC, henceforth referred to as the corporation) needed to be measured. To attain and measure the corporation's corporate performance, the following factors were considered:

¤ Giving management control a strategic dimension

¤ Communicating to everyone a clear picture of the purpose of his/her work

¤ Discussing how the employee's efforts to develop competences, client relationships, and IT will pay off in the future

¤ Creating opportunities for learning by more systematically measuring factors, which are important for success, and using these data in an ongoing discussion about the corporation's business

¤Establishing greater respect for the fact that most important things done at the corporation do not immediately result in higher revenues or lower costs

¤ Finding ways to ex-plain to outsiders what the corpo-ration is, and can do, to complement the annual report.

The corpo-ration's main ambition is to create a learning organisation climate. To create this synergetic effect, the use of the Balanced Scorecard system was introduced with the aim to show a more thorough and meaningful picture of the corporation's business.

The Balanced Scorecard system provides a total comprehensive picture of the corporation. The Corporate Balanced Scorecard provides a long-term view and the functional balanced scorecard provides a one-year review.

ETC needed this system to describe what is expected from an operation and how well these expectations are being met. In today's business environment, preparing for the future is about investing in competence, cultivating client relationships, and creating databases. The Balanced Scorecard is a method for reaching agreement on where an operation should be heading and to ensure it stays on course.

The balance adopted reflects the strategic choices of the corporation's business. The measures selected will serve as an aid to financial controls and as a means of reducing the danger of a harmful short-term approach, while at the same time making employees more aware of the meaning of their work and the underlying assumptions about the future and the Corporation.

Balanced Scorecard concept

The Balanced Scorecard links short-term operational control to the long-term vision and strategy of the business. This will be achieved through the introduction of the Corporate Balanced Scorecard, which ETC will be introduce shortly. In this way, the corporation focuses on critical key strategic indicators in meaningful target areas. It is forced to control and monitor day-to-day operations as they affect development.

The basic scorecard model has four perspectives, underlain by an explicit vision and strategy. For each perspective, strategic aims, measures, specific goals and action plans are formulated. The perspectives allow one to focus on work, allocate resources and set targets. They also allow follow-up results in learning, which will lead the corporation in turn to re-examine its vision.

At every step, the scorecard serves as the means of communication. A properly constructed Balanced Scorecard should tell the story of the corporation's business division, department or unit's strategy. It also identifies and makes explicit the sequence of hypotheses about the cause-and-effect relationships between outcome measures and the performance drivers of those outcomes.

The essential criteria used in developing divisional/departmental scorecards for the corporation were:

¤ a compact structure for communicating strategy

¤ discussion of the cause-and-effect relationships among different factors and the articulation of the strategic hypotheses underlying the corporation's course of action

¤ a systematic procedure for conducting these discussions, so that they replace traditional planning and control of an almost purely financial nature.

Thus the Balanced Scorecard not only implements the corporation's strategy, but also fosters a culture in which constant change is a normal way of life. Effective measures are permitting review and providing decision-makers and strategic planners with rapid feedback during the management committee meetings.

ETC's Balanced Scorecard system includes measures of various aspects and conditions which are important to business. Measures are compact descriptions of observations, summarised in numbers or in words.

The measures summarise certain attributes of the subjects concerned. Usually the description is numerical. One particular benefit of these measures taken from the Balanced Scorecard is that it triggers internal discussions on what the measures mean.

Operational excellence at ETC

The majority of the Balanced Scorecards were drawn up by January 2002 with management. Monthly and cumulative achievements were discussed for the particular division, department or unit. It was clear for the quantitative type of functional balanced scorecards. A problem was encountered when it came to give a proper definition of those divisions and departments that did not foster quantitative objectives.

Since ETC is a member of the European Foundation of Quality Management (EFQM), an e-mail was sent to EFQM Excellence One in February 2002 highlighting the problem we were encountering.

Our query was put on an EFQM Website so that members within other organisations could pool in their resources to help. Help was received from EFQM in March 2002, when a colour code system was referred for the different projects undertaken by the divisions concerned.

The code is simple, green means the project is according to schedule, orange means the project is encountering some problems, red means it has been stopped and grey means that the project has been finalised.

With such a simple system of codification of projects for the qualitative type of balanced scorecards as well as the quantitative type of balanced scorecards, management is in a position to discuss in a structured manner the performance and review progress of the corporation's divisions on a monthly basis.

A presentation is drawn up for the board of directors based on information contained in the functional balanced scorecards of the various corporation's divisions. A set of bar-chart indicators is also drawn up and disseminated to the management to discuss among staff.

Most of the initial scorecards in the non-profit and government sector feature an operations excellence theme. Often, the project will build off a recently introduced quality initiative that will emphasise some form of local process improvement. To this effect, the Corporate Balanced Scorecard is being drawn up, which will extend the vision of the corporation in a three- to five-year timeframe and address such issues commonly found in similar non-profit organisations.

Modifying the Balanced Scorecard

Rather than developing a conflict, ETC is placing both the donor and the recipient perspective at the top of their Balanced Scorecard. Objectives for both donors and recipients are developed and the internal processes that deliver will be identified so that the desired value propositions for both groups of "customers" are achieved.

In the case of ETC, this would be providing employment and training programmes to its clients and the marketing of the corporation's programmes and schemes. Then the objectives within the scorecard can be oriented toward improving a high-level objective and enhancing effectiveness. The mission is being featured and measured at the highest level of its scorecard. Placing an overarching objective on the Balanced Scorecard for a non-profit or government agency clearly communicates the organisation's long-term mission.

Even the financial and customer objectives, however, may need to be rethought for ETC. Take the case of the Compliance Unit that monitors and 'punishes' violations of illegal employment. As such, the unit does its job - detecting transgressions and identifying people who violate the laws and regulations, but can it look to its 'immediate customers' for satisfaction and loyalty measures? Clearly not, the true 'customers' for such organisations are the citizens at large, who benefit from effective but not brutal or idiosyncratic enforcement of laws and regulations. Figure 5 shows a modified framework in which the corporation will have three high-level perspectives.

It will usually be hard to quantify, financially, the benefits from improved education through training and the increase in employment levels on all sectors. But the Balanced Scorecard still enables ETC to identify the outputs, if not the outcomes, from its activities and to measure these outputs.

Surrogates for values created will include the percentage of apprentices acquiring specific skills and knowledge, number of direct placements made, the efficiency of the corporation's job centres, the values of professionalism, quality, co-operation, respect and commitment etc. These will be measured through surveys. The board of directors will eventually make the judgements about the benefits from these outputs versus their costs.

Once the strategic map scorecard is established as a template, the strategic themes will become the basis for active discussions among the corporation's managers, about how these cross-departmental objectives could be achieved.

The corporate and functional balanced scorecard will be the basis for determining whether the short-term and long-term goals of the corporation are being met. All of the organisational design must be linked if the corporation is to achieve a clear line of sight.

Creating business unit synergy

The functional Balanced Score-cards used within the corporation have been devised with these main aims:

¤ aligning the efforts of the divisions to the priorities of its clients

¤ providing a basis of accountability between the unit and its clients

¤ tracking the progress in the performance of the divisions

¤ building a culture of customer-based performance and continuous improvement within the divisions

The ETC as a strategy-focused corporation will be using the Corporate Balanced Scorecard in these distinct phases to align the employees to these strategies:

¤ communication and education: employees must learn about and understand the strategy if they are to help and implement it. Creating employee knowledge and understanding is the objective of an effective communications process

¤ developing personal and team objectives: employees must understand how they can influence the successful implementation of the strategy. Managers must help employees set individual and team goals that are consistent with strategic success. Personal development plans can be customised to achieving these goals.

The corporation's management team has thus identified which Balanced Scorecard objectives and measures are the most important for the upcoming year and agree to an incentive plan based on these measures.

Dr Micallef is senior executive, ETC Business Development