Strategic alignment: linking your learning strategy to the balanced scorecard

The Authors

Ajay M. Pangarkar, President at CentralKnowledge Inc., based in Laval, Quebec, Canada.

Teresa Kirkwood, Vice President at CentralKnowledge Inc., based in Laval, Quebec, Canada.

Acknowledgements

Abstract

Purpose – The purpose of this paper is to address the increasing need to move past the traditional measurement, evaluation methodologies and truly connect the value of learning and performance to organizational objectives and strategy.

Design/methodology/approach – Though anecdotal research, several industry conference presentations on the topic, and discussions with senior management groups it is highly evident that there is a need for both an organization's learning group and senior management to communicate. Add to the fact that the Balanced Scorecard is becoming the tool of choice for many organizations to translate their mission into tactical outcomes, the learning and growth component is one of the weakest developed areas of this important tool but, according to the creators of BSC, it is the most significant part of the BSC enabling the other components.

Findings – The need for organizations to compete is increasing exponentially. Organizational leaders are quickly realizing that their organizations can no longer compete based on past success factors such as assets, products, or pricing in a knowledge-based economy. The senior management groups understand that more than equipment, their success lies in the knowledge of their employees to compete. New ideas, innovation, and technology are significantly contributing to the knowledge need.

Practical implications – From this paper, readers, specifically those responsible for training, learning, and human resources along with senior managers, will be able to communicate and begin to connect their learning strategies to the organization's mission and strategic planning process.

Originality/value – Kaplan and Norton stress the need for management to be attentive to the “Learning and growth” component of the BSC and not disregard or minimize its importance to the other perspectives. To date, how to integrate and develop the learning and growth component was not addressed in any depth.

Article Type:

General review

Keyword(s):

Strategic objectives; Balanced scorecard; Learning; Performance management; Knowledge sharing.

Journal:

Industrial and Commercial Training

Volume:

Number:

Year:

2008

pp:

95-101

Copyright ©

Emerald Group Publishing Limited

ISSN:

0019-7858

Well it appears that implementing the balanced scorecard (BSC) as the strategic management tool of choice is a trend that is well on its way in many organizations worldwide. Initially introduced in the early 1990s as a tool to help companies translate their corporate mission to all levels organization, the BSC is widely acknowledged to have moved beyond this ideology. It is now become as a strategic change management and performance measurement process.

According to surveys by the Institute of Management Accountants (IMA), more than 50 percent of the large companies in the USA are using some form of balanced scorecard. This is reflective of the power and simplicity of the BSC to provide direction for all levels and areas of the organization. The balanced scorecard, developed by Robert Kaplan and David Norton, is a management system that gives business people a comprehensive understanding of business operations. But still after more than 15 years it is surprising that there are still many business people unconvinced about the utility and effectiveness of the balanced scorecard. And even more surprising about the number of organizations giving up on it through their own misapplication or misuse of the tool.

At its roots, the BSC is designed to give companies the information they need to effectively manage their business strategy tactically. The scorecard is similar to a dashboard in a car. As you drive you can glance at the dashboard to obtain real-time information such as how much fuel remains, the speed you are traveling, the distance you have traveled, etc. The BSC provides similar information to all levels of the organization through performance measures connected to specific business areas in the same manner. The scorecard communicates to managers in clearly defined terms how well the business is meeting its strategies and goals.

Fundamentally, the BSC is about performance measures. Coincidentally, this is also what our role as learning professionals has become as well (hence, workplace learning and performance). The BSC incorporates traditional financial performance metrics, familiar to financially-oriented stakeholders and management of the organization, as they are connected to performance indicators within a financial reporting system. In the past this information would have been sufficient, however, the current reality dictates something more comprehensive.

The appeal of the BSC is its ability to include both traditional financial metrics and non-financial performance measures in its reporting capacity, thus the term “balanced”. Therefore, managers can obtain information on a variety of intangible and non-financial metrics such as customer satisfaction, cost per new hire, percent of jobs that meet schedule, percent of errors in budget predictions, etc., essential to capturing information about the performance of an enterprise.

The attraction of the BSC is its simplicity in its structure and function and its ability to bring together leading and lagging performance indicators. The BSC is divided into four primary business and strategic areas on which an organization must focus in order to get a complete picture of how the enterprise is performing. They are:

Financial perspective. The question asked here is “How do we look to our stakeholders?” The objective of every organization is to deliver maximum value to stakeholders. For profit oriented companies these are the shareholders and customers for non-profit it many be government, taxpayers, or community.
Customer perspective. The question to ask is, “How do we look to our customers?” All organizations, profit and non-profit, have customers. To survive and grow an organization must be able to deliver quality goods and/or services providing for overall customer satisfaction.
Internal business processes. The question here is, “What must we excel at?” The reason for an organization's existence is what it produces or delivers. Identifying the key business processes which an organization must excel is essential if it is to meet strategic goals and customer expectations.
Learning and growth perspective. The question to ask is, “How can we continue to improve and create value?” This is the perspective management recognizes as at the root of competitive sustainability. This is also where WLP can deliver significant results, connect with strategy, and move past Kirkpatrick Level 4, business impact, and Phillips Level 5, return on investment of training.

The current business climate requires managers having a balance between financial and non-financial measure to develop effective solutions in arriving at proper decisions. Financial measures provide historical results where non-financial measures usually indicate the positive outcomes of a particular decision. This is where our role as learning professionals comes into play. Our efforts are directly correlated to non-financial performance metrics. These metrics support, for example, why developing a specific skill set for a group of employees increases productivity leading to strong growth, helping to build credibility for WLP and our role within the organization. Non-financial measures are essential to helping companies succeed. If used effectively, they can drive an organization – using its performance measurement system – to higher and higher levels of achievement.

The need for the BSC and its connection to WLP

To truly understand the reason for the growing need of the BSC one must understand the significance of organizational strategy. Most business professionals recognize that strategy is at the center of every business process. Successful business managers have a laser-like focus on it. Although this may be common sense for businesspeople many, however, are unable to connect their business objectives and the organization's mission resulting in many companies not meeting their strategic goals. This is not necessarily a result of managerial incompetence, though this may be the case in some instances, but more from not knowing how to develop or connect short and mid-term objectives in response to the proposed strategy.

Go and read your organizational mission statement in the lobby of your company and asked yourself, “how does my role or what I do fit into this objective?” In a simple framework the BSC helps senior managers translate and effectively communicate performance objectives and measure in tactical terms how their role contributes to the strategic vision of the organization.

For those responsible for talent management and employee development, strategy has never been at the forefront of their mandate or learning plans. Again, the failure may be more with senior management not effectively communicating the importance of strategic alignment with the “softer side” of the business such as workplace learning and performance. This was the case in less turbulent economic times. As a result of increasing hyper-competitive and global markets, management's performance, specifically the C-level suite (CEO, COO, CFO, etc), are tied directly to executing successful strategic outcomes for their organizations. Expectations are not just from the traditional “shareholders” anymore, satisfied simply with reporting of financial performance but now include non-traditional “stakeholders” such as customers, suppliers, employees as well as specific business processes and innovative capability.

So why is this relevant for those responsible for employee development and workplace learning? It is relevant for a few reasons.

First, achieving strategic objectives requires organizational decision-makers answer the questions “where do we and what do we want to be …?” In both instances this necessitates building existing organizational knowledge (human capital). In simpler terms, “what you know now got you here but will not get you to where you want or need to be”. Learning professionals must acquire the strategic skills and understanding to better align employee skills and abilities with strategic objectives.

Second, contrary to what we are told by the “training ROI” movement in recent years, C-level managers are less concerned about financial outcomes of learning investments and more preoccupied in obtaining non-financial performance outcomes. In more direct terms, they want to see how T&D delivers results in relation to organizational objectives over answering the “did the training solution make money over what it costs”. Again, this is because financial measures are lagging indicators of performance and, in the end, if training costs exceeded its benefits then it is too late to do anything about it. The results have “already happened” and when you are concerned what is going to happen tomorrow you do not really want to know what occurred yesterday. Also, T&D is not perceived as a critical investment over other operational issues. Time and again many C-level directors indicate to us the importance of having some type of forward looking indicators as they are already possess sufficient financial data.

Although anecdotal, the same decision makers also indicated that “we (T&D) are not good at applying financial measures”. They are unconvinced about the objectivity of training ROI measurement results. As learning consultants we were told to do what we are good at; helping them obtain and connect to leading, non-financial performance indicators, something they desperately require. This may sound repetitive but corporate leaders are concerned about strategic outcomes and the BSC effectively facilitates this process.

Third, for many years companies preached that their employees are their greatest asset but only in recent times have senior managers truly recognized this truth. Not to slight business leaders of the past, but it is evident that the marketplace leaders are the same ones investing a significant percentage of their payroll in learning solutions, are able to connect employee development to strategic objectives, and effectively leverage employee knowledge to innovate in a variety of ways. C-level managers realize true competitive advantage is not through physical assets or products but through their people. Everything else is simply the result or benefit of employee skill development and creativity. One concern some clients voice is their worry of employees leaving after investing in training. We respond by saying what if you do not train them and they stay?

An opportunity to sit at the table: connecting learning to strategy

Astrologers would say the planets are lined up for the professional learning sector. Externally, economic and market factors call for organizations to adapt instantaneously and technological evolution is accepted now as a constant. Internally, organizations need to change and evolve quickly, resulting in the need to build employee knowledge, competencies, and skills for the future. The common thread in all of these factors is the need for continuous learning leading to improved performance. Add to the mix management's need to reconcile and integrate all these issues to achieve their strategy (the balanced scorecard) places workplace learning performance at the top of many CEOs priority lists.

Accountability does not solely rest with senior management when it comes to incorporating workplace learning in organizational strategy. Senior managers may shoulder the responsibility to including it in their strategy development discussions (the coveted seat at the table) but learning professionals must also be held accountable as well. Until recently, those responsible for employee development did not see the relevance of connecting to organizational objectives. This is highly evident with the types of performance measures used in the past, such as number of employees trained or testing scores. Add learning profession's disdain for business and you quickly have a learning environment very much disconnected from corporate and market reality.

Take a look at the Figure 1 (BSC Interdependency diagram) as developed by Kaplan and Norton. You will notice two important items. The first thing you notice that the BSC accounts for “learning and growth”. Not impressed? You should be. Never before has any business trend elevated the importance of “learning” in the discussion about, let alone the development of, strategy. Second noticeable item is that it sits at the bottom of the diagram. Many business people state that the positioning clearly minimizes the importance of this perspective. Kaplan and Norton rebut this notion stating the “It's at the bottom because it acts as the foundation for everything else above it”. Dr Kaplan once described the employee learning and growth perspective “as the roots of a powerful tree, which are the sources of support and nourishment leading to the blossoms of financial returns” (Niven, 2002). Figure 2 illustrates more literally the relevance and importance or learning as described by the creators of the BSC.

Making the connections: linking learning to the BSC

Like a well-oiled machine, every organization functions best when the sum of its parts (departments and divisions) work toward a common goal. The driving perspectives of the BSC (financial, internal processes and customer) work interdependently through very tangible objectives, targets, measure, and initiatives. But how does learning tangibly connect with the other business areas through the BSC? A simple example demonstrates the process more clearly.

Let's say company ABC's primary strategic objective is to increase revenue in the next three years (refer to Figure 3). To increase revenue the company will have to increase production and sales by introducing and producing new products and reposition current products. In this case, the financial perspective is the primary driver of strategy for the other three perspectives. We can derive the customer perspective by looking to increasing customer loyalty and develop customer relationships enticing repeat purchases. This in turn requires internal processes to support new product development through R&D, ramp up production for the increasing sales, ensure adequate inventory, and ensure purchasing processes are functioning properly. These three perspectives are the drivers for the strategy. The role for learning and growth is to enable and support the needs of the first three perspectives similar to how internal processes support sales. By partnering with the other business areas workplace learning is better positioned to understand their needs. For company ABC, workplace learning would collaborate with the sales and marketing department to train and coach the sales staff, work closely with customer relations through a customer service and new product training program, and even look at developing production efficiency and new equipment training courses for manufacturing. Wrapped around all of the perspectives would be specific objectives (the expected results), targets (tangible metrics), and measures (the reports to obtain the metrics), and initiatives (what you will actually do). WLP solutions are the vehicle to help other business units achieve these critical metrics.

So how do you begin? The following steps will help you to contribute to these critical business areas, become more strategic in your learning solutions, and be more tactical in your approach with your customers in the organization.

The first step is to clearly understand your organization's corporate strategy. Analyze the mission and vision statement as they provide succinct insight into senior managements objectives. When done well, these statements outline the critical areas requiring the support of an enabling perspective. If you are a public company review the annual reports to gain further insight of management's message and gain an appreciation of stakeholder expectations.

Next, get a hold of the corporate balanced scorecard. If one is being developed get involved. The BSC will provide you with the “tactical” information of what is expected from each of the business units under each perspective. Review the BSC and learn about the relationships between the driving perspectives. If you are fortunate, your organization will have cascaded the scorecard through each business unit. This will allow you to work closer with every level of the organization to develop more targeted learning solutions.

Conduct interviews with management and stakeholders. Meet with the C-level decision makers in your organization they will expect it. Determine their expectations from workplace learning and performance and the role that it will play in the strategy. They will provide significant amounts of information, a clear direction for the organization as a whole, and how it flows through the organization (cascading the strategy through the BSC to each business unit). Meet with business unit stakeholders and process-critical staff. Building partnerships with these groups help to create synergy between their knowledge of what they require and your learning expertise to develop effective and targeted solutions.

Determine the measures and metrics for the objectives set forth by the BSC for each perspective. When working with other business units within the BSC be aware of their objectives and metrics they're expected to meet.

Develop a BSC for learning and performance. Traditionally, training and development is viewed as a functional, supportive unit. In the evolved strategic context, learning and performance and must become operational and interactive with the other units. This means as a strategic business unit WLP should develop its own scorecard. This is not solely about “training ROI. When developing a WLP scorecard your performance measures should be forward looking and make a strategic contribution.

The role of learning in the workplace is increasingly critical and demanding. It is more than measuring business impact. It is also more than simply measuring return on investment of training. It is about connecting to strategy. More than ever before the sole competitive advantage for every organization is ensuring employees not only understand strategic objectives but are able to attain them. This is where WLP must take on a strategic capacity. This is the driving message of the Balanced Scorecard and senior management's new paradigm. Your role is to value workplace learning and performance in this context rather than simply the traditional functional role. There are many ways to measure the impact any learning initiative has on an organization. Begin with the strategic objectives of the organization and work back linking learning objectives with immediate business objectives as stated by the BSC. By doing this you will easily determine the relevant performance measures and metrics and satisfy senior management's preoccupations such as operational performance and efficiency, compliance issues, organizational effectiveness, and workforce capacity and proficiency, as well as more intangible dimensions such as motivation, innovation, and adaptability.

It is time to start thinking “outside of the course” and inside the BSC to develop learning solutions that directly connect with the business concerns and strategic objectives or the organization.

Figure 1BSC Interdependency diagram

Figure 2Learning and growth enabling strategic drivers

Figure 3Company ABC – mapping learning to strategy example

References

Niven, P.R. (2002), Balanced Scorecard Step-By-Step, Wiley, New York, NY, .

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Corresponding author

Ajay M. Pangarkar can be contacted at: ajayp@centralknowledge.com