Individual Balanced Scorecards: Capitalizing on Individual
and Organizational Needs for Mutual Benefit
by Tom Haak and Frank Lekanne Deprez (KPMG The Netherlands)
This paper appeared at the:
- 7nd World Business Dialogue on Rethinking Knowledge, March 03-04, 1999, Cologne, Germany
- Second World Congress on the Management of Intellectual Capital and Innovation January
21-23, 1998 Hamilton, Ontario, Canada.
Tom W. Haak is former director of KPMG Human Resource Development
Frank R.E. Lekanne Deprez is manager of KPMG Knowledge Management, Burgemeester
Rijnderslaan 20, 1185 MC Amstelveen, The Netherlands. E-Mail: knowledgemanagement@kpmg.nl
Summary
Increasing technological advances and business demands are pushing us into the knowledge
economy. The success of knowledge intensive organizations will ultimately depend on the
speed of organizational learning, the ability to effectively mobilize their knowledge and
people base and turn it into value.
In the Industrial Age jobs were meant for life and the corporate apron strings were rarely
severed: careers took care of themselves. Nowadays, the relationship between employees and
organizations is in flux. It is strengthened by trends such as increasing individualism
("free agents"), the rise of the truly global organization and the rapidly
growing opportunities caused by innovative information and communication technologies. A
key success factor for companies in the future will be their capability of to balance
organizational business needs with personal needs.
This article outlines a methodology for using the Balanced Scorecard approach to assess
individual needs and aspirations (Personal Development Plan) and match them with
organizational business. The Balanced Scorecard, as developed by Kaplan and Norton1, is
the fundamental building block for a business development plan which complements a
company's traditional financial performance with three non-financial focuses: customers,
internal processes, and innovation. Within the personal planning process, the Competency
Scorecard is input for a Personal Development Plan. Formulating the Personal Development
Plan is supported by the company's Development Center.
Matching the Business Development Plan and the Personal Development Plan has resulted in
the creation of a Individual Balanced Scorecard. This Scorecard is essentially a contract
between the employee and the organization, which sets specific goals and targets that are
beneficial for both. The challenge is to align the goals of individuals with company-wide
organization goals and vice versa. The Individual Balanced Scorecard approach also
incorporates other established Human Resources Practices (e.g. pay for performance). This
paper focuses on the implementation of the Individual Balanced Scorecard methodology
within KPMG Netherlands. And discusses the early results and lessons learned of the
current approach.
The Pursuit of Knowledge as Abstract Wealth*
To reap the advantages of the Knowledge Economy, managers must be able to manage all their
assets and not just the visible ones-the intangibles become the deciding factor in the New
Economy. Barker wrote in 1993: "When a paradigm shifts, everyone goes back to
zero" (Barker2).
And companies are being faced with this rule time and time again. When we move into a new
era, a new race begins. Barker continues: "By zero, I mean that regardless of what
your position was with the old paradigm-number one in market share, leader in technology,
best reputation-you are back at the starting line with the new paradigm. Because of this
change in leverage, the practitioners of the new paradigm have a chance to not just
compete with but defeat the titans of the old paradigm" (Barker2).
Why, then, is past success no guarantee for the future? Why do companies lack the ability
to thrive in the new economy? Is change so difficult that companies change for the sake of
it? Perhaps paradigm paralysis is locking companies into the way they have always worked
so that it becomes almost impossible for them to become players in the new game. As we
stand on the divide between the Industrial Economy and the Knowledge Economy, it is time
to pause and take stock of the old paradigm and envision a new one.
In 1917, the number one company in the United States was US Steel Co. Its product was
typical of the "Industrial Age": heavy in weight and light in know-how. In
today's terms, it had assets of $ 30 billion, three times greater than those of the next
largest company, and employed 268,000 workers. Moving to today's list of the top 100 US
you will search in vain for the proud name of US Steel. Its assets are now only $ 6.5
billion-a fifth of what they were eighty years ago-and it employs a mere 20,800 people
(Forbes3).
So what kind of companies are making the Top 100 list today?? Simply companies that are
specialized in intangibles. In the Knowledge Economy, products don't weigh a ton-they are,
instead, the products of the (collective) human mind rather than of the production line.
We have moved from the heavy-weight to the weightless society.
All Brains, No Body
Today, the most successful companies are becoming brain rich and asset poor. An all
brains, no body organization which is in diametric contrast to the traditional small
brain, large body organization of the industrial era.
In the Industrial Age, people always thought of an organization as a
pyramid." "And that's changed in the Knowledge Economy?"
"You bet. A Knowledge Company is brain rich but asset poor. It's feather light.
Information and knowledge is replacing volumes of physical assets. It's the all brain
processes that add value to the company."
"And what about the rest?"
They can be outsourced, or eliminated, keeping excess body weight to a minimum"
As we move into the Knowledge Economy, information and knowledge have replaced physical
products-bits have replaced atoms-and this is causing the body to shrink. And shrink fast.
The result is an "all brains no body organization". The "all brain
processes" add value to the company-they are the ones that need nurturing. All other
processes and/or functions are outsourced or eliminated entirely. And the result is that
the "non-brain body weight is kept to an absolute minimum."(Harari5).
What's more, "no body" can also mean "nobody." How many people will be
employed in the organization of the future?
Creating such an organization is certainly not easy. It requires a significant change of
behavior from everybody in the company. Within these organizations people will be
operating like nomads in the dessert or like people in sea: "They are helping each
other and they are responding to each others needs "(Eno6).
The success of knowledge intensive organizations will ultimately depend on the speed of
organizational learning; the ability to effectively mobilize their knowledge and people
base, and turn it into value. However, the images of work have not changed as quickly as
the images of organizing (Barley7).
The last proliferated many new ideas for different organizational structures and
architectures (e.g., Virtual Organization, Shamrock Organization, Shapeless Organization).
In contrast we continue to think about work, even in high technology and service settings,
with concepts and categories coined during or before the industrial revolution.
To Neglect Intellectual Capital is to Neglect Tomorrow
Management literature has recently been flooded with fashionable, fad-like concepts, such
as intangible assets, intangible resources, hidden value, hidden capabilities, invisible
assets, Corporate IQ, Knowledge Capital, and Intellectual Capital (IC). Many of the
leading advocates of intellectual capital and knowledge management are being blamed for
spending too much time on the conference/seminar circuit-than developing non-technical,
non-specialist approaches for managing intellectual capital.
These Thought Leaders focus on the ultimate resources in the Knowledge Economy being not
physical but intellectual. Greeting every new buzzword with skepticism, however, does not
answer the basic question of whether any of the new approaches create a new business
mainstream; a new paradigm that brings everyone back to zero. Fads often motivate people
to take on a let's-try-a-new-way-of doing-things-around-here. Currently, managing
intellectual capital seems to be catching the next wave in management philosophy. The
problem is that intellectual capital is a very new and unknown area: "Research about
it started just five years ago (even though there has been some previous research in
adjacent areas). Consequently, "a book on intellectual capital is like a journey into
uncharted territory, where only reason and some good navigation tools can us help find the
way" (Roos et. al, 19978).
Intellectual capital is rapidly becoming a measure of the company's future performance. It
reveals the future earning capabilities of an organization (Knowledge Inc.9,
Edvinsson10,
Goldman & Hoogenboom11).
To win over shareholders and stakeholders, companies must show that their intellectual
assets hold value-adding potential. The intangible resources of a company are clearly not
homogeneous and current definitions of IC clearly reflect this diversity. The Intellectual
Capital of a company is the sum of its member's knowledge and the practical translation of
this knowledge, (i.e. brands, trademarks, employee know-how, personal networks and
processes). On the other hand, intellectual capital might be defined as anything that can
create value in other words, intangible value is the difference between the total value of
the company and its financial value (Roos et. Al8).
The key factor of capital is that it generates value. The problem with Intellectual
Capital is that it generates intangible value abstract wealth often called "new
wealth" (Stewart, 199712;
Sveiby, 199713).
But IC is not the first attempt to measure human intellect and potential. Human Capital
dates back into classical antiquity and recognizes that people possess skills, experience,
and knowledge that have economic value to organizations. The theory asserts that
individuals' abilities and skills are their productive capability - their "human
capital". But there are no generally accepted accounting procedures for valuing human
capital. Nabil Elias, a University of Manitoba accounting professor, says that
organizations interested in accounting for intellectual capital should focus on how they
can use the measurements to better manage their human resources: "human resource
accounting never caught on because it was about numbers in search of a use. What we needed
was uses in search of numbers (Edwards14)".
The dynamic nature of IC makes it hard to measure it with precision. Claude Balthazard,
senior consultant with the Canadian Imperial Bank of Commerce, which began measuring
intellectual capital in 1994 says:" We are finding that the most meaningful
measurements involve a degree of subjectivity either in their derivation or in their
interpretation. But it is better to have an approximate measure of the right thing than a
precise measure of the wrong thing. (Edwards14).
Reframing Employee Relationships
Especially the slogan 'human resources are our most important asset', which can be heard
in many organizations, reflects a view on employee relations which has become more common
in the past decade. The slogan still contains an element of ownership. One could say:
"We own human resources, who in the past were treated too much like machines, and
were easily replaced when the time came, but these same resources have become so important
that we have to treat them well, offer them opportunities for development". Will an
employee consider her/himself as an "controllable asset"? The new employee
cannot simply be treated as a piece of equipment that management moves around according to
their needs. Employment contracts are defined as the understandings people have regarding
the commitments made between themselves and their organization. The relationship was based
on: "You give loyalty-you get security." For people, sense of restlessness, the
pressure to build new competencies with enduring value and the disappearance of the
traditional career path will result in a shift from "contract-based" to
"convenant-based" commitment to organizations. But how can organizations meet
the career expectations of this new employee? What's taken the place of this career path?
Are we all on the road to nowhere?
Hall & Mirvis15
outline the rise of what they call the 'Protean Career'. The term protean is taken from
the name of the Greek God Proteus, who could change shape at will, from wild boar to fire
to tree and so on. Their definition: "The protean career is a process which the
person, not the organization, is managing. It consists of all the person's varied
experiences in education, training, work in several organizations, changes in occupational
field, etc. The protean career is not what happens to the person in any one organization.
In short, the protean career is shaped more by the individual than by the organization and
may be redirected from time to time to meet the needs of the person". Tom Peters16
in his article "The Brand Called You" describes future careers as follows:
"A career is now a checkerboard. Or even a maze. It's full of moves that go sideways,
forward, slide on the diagonal, even go backward when that makes sense. (It often does). A
career is a portfolio of projects that teach you new skills, gain you new experience,
develop new capabilities, grow your colleague set, and constantly reinvent you as a
brand". With this new mental focus where organizations will have too struggle for
talent, it becomes even more important to be able to match individual and organizational
needs. Both organizations and individuals will benefit from an increased ability to
facilitate and manage this "fitting" process. The organization will be able to
assign and commit motivated, qualified knowledgeable people to their projects and the
individual will be able too develop the most promising and challenging learning
opportunities. The simple truth is that if you're not learning new things, you -and your
career!- are becoming absolete.
The New Employee Paradigm
In the light of the approaching 21st century, it is imperative for both employers and
employees to become engaged in an evolutionary process of shifting paradigms to help
establish a new relationship for this new mode of production. It will somewhat echo like
follow:
"My own destiny is in my own control"
"I own myself a living, a security, not my employer"
"I am an entity in my organization, not an individual"
"I am an explorer or opportunity seeker for knowledge and skills"
"I am not an employee but a Business and Knowledge entity which is an essential
function of the entire business process"
Source:Andrew Wong17
The Business Planning Process
Possessing a good Business (Development) Plan is no guarantee of success nor of avoiding
failure. The process of formulating and writing and communicating a business plan,
however, can ensure that weak points and opportunities are identified at an early stage.
Describe your business, what it does and why it is different. But the problem with many
business plans (see Figure 2) is that they waste too much ink on numbers and devote too
little to the organization's opportunities and critical needs. The current balance sheet
no longer tells the whole story. In the Knowledge Economy, financial-reporting systems are
insufficient at helping to develop a business plan. Financial data tells a lot about what
has happened in the past, but it cannot show what levers managers and professionals need
to pull to create and capture future value: "But managing by financials won't
necessary get you better financial results, because the financials only tell you where you
were- they're history. They don't tell you where you're going. And they certainly don't
tell you anything about potential" (Kurtzman18).
As shown in Figure 2, the Balanced Scorecard (Kaplan & Norton19),
is the fundamental building block in the Business Planning Process and complements a
company's traditional financial performance perspective with three
non-financial-intellectual capital-focuses: customers, internal processes, and innovation.
The aim is to ensure that sufficient attention is being paid to areas the company has
identified as critical for attaining its strategic goals.
Specifying these areas, and the relationships between them, is much easier said than done.
It is best to start with a small number of areas and select those indices agreed upon by
relevant stakeholders.
On the other hand, critics believe that this approach confuses the issue, that a company
should have a sophisticated way to measure itself but that those measurements should be
purely financial: "If you don't measure it, I don't understand it. "(Kurtzman18).
Roos et. Al8
believe that a balanced approach is preferable over a financial scorecard:" Going
back to the airplane metaphor, using a financial scorecard is like having a lot of
information on fuel (level, consumption, pressure, status of the fuel system, and so on)
while ignoring all the data on altitude, position and all the other systems in the plane
(p.22)".
The Personal Planning Process
As people feel more and more responsible for their own development, the need for a
thorough personal-planning process increases. In the past, it was often a luxury for
"redundant" personnel to spent time in this process. Coaching was done by
outplacement agencies, who often did a good job in developing instruments to help people
in clarifying their strengths, weaknesses, wishes and opportunities. Clever outplacement
agencies have now transformed in career advise centers specializing in career counseling.
The first step in a sound personal-planning process is assessment. A multilayer assessment
helps the individual to investigate wishes and capabilities from different angles. A
differentiation can be made between 'value assessment', 'personality assessment', 'skills
and knowledge assessment' and 'behavioral assessment'. In a good assessment a variety of
instruments are used, such as Meyers-Briggs (see Kersey20)
or Big-Five for personality, Schein's Career Anchors for values, Assessment Centers
(Ballantyne & Povah21)
and 3600 Feed Back (Jones & Bearly22)
for behavior.
The assessment results in an individual Competency Scorecard. Competencies can be viewed
as a container encompassing values, personality, motivation, knowledge and skills,
resulting in behavior. In Figure 3, the relation between these elements is sketched. A
short and attractive definition of a competency: 'things someone can do good and likes to
do'. For a more elaborate discussion on competencies, see McLagan23.
Using the individual competency framework as the starting point, one has to built the
Personal Development Plan, which covers the following questions:
- What is my long term mission?
- In which directions, do I need to develop my competencies in order to reach my long-term
objectives?
- How can I develop the required competencies, using my current Competency Scorecard as a
starting point?
The Individual Balanced Scorecard
The organization has formulated its business development plan. The individual has
formulated a Personal Development Plan. The Individual Balanced Scorecard is a tool to
facilitate the conversation between employee and organization and to capture the results
of this conversation in a comprehensive format. The Individual Balanced Scorecard can be
considered as an agreement between employee and organization. A quality scorecard sets
specific goals and targets which are beneficial for both employee and organization. The
challenge is to align the goals of individuals with company-wide organization goals and to
align the goals of the organization with the goals of individual members of the
organization. As Kim and Mauborgne24
state: 'Creating and sharing knowledge are activities that can neither be supervised nor
forced out of people. They happen only when people co-operate willingly'. An Individual
Scorecard can appear in different shapes, adapted to specific needs of organizations. In
the KPMG example, the Individual Balanced Scorecard has six perspectives that align with
the competency areas which are used with KPMG in The Netherlands. They include: Client
Orientation, Market Orientation, People Orientation, Result Orientation, Personal
Effectiveness and Professionalism (see Table A). Other organizations might choose to bring
the perspectives of the Individual Balanced Scorecard in line with the Balanced Scorecard,
as Kaplan & Norton19
suggest. Disadvantage is the possibly perceived dominance of the business input in the
Individual Balanced Scorecard, where the aim is to strive to a balance between
organizational and individual needs.
|
