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Since the Balanced Scorecard emerged, it has been much ballyhooed as an evolutionary step in performance measurement. The question that emerges is how this performance measurement can be linked to an organization's strategic efforts. Of equal importance is the question of how the organizations that employ the BSC regard its usefulness as a tool.

To find answers to these two largely unresearched questions, the FEI Research Foundation commissioned a study intended to identify characteristics of companies that could benefit from employing the measurement, as well as to investigate scorecard practices that provide a competitive advantage. The study had four core objectives: to present factors that affect the satisfaction of CFOs with their performance measures; to identify characteristics of BSC users and non-users; to describe successful BSC user practices and contrast them with practices of non-users; and to examine the practices of four leading firms in the development of their BSC.

Results of this study enabled the research team to "put a face" on features that foster the development of an effective BSC. These features include culture, nonfinancial information, linkage and implementation of the BSC, effects on key constituents and change management and the BSC.

As Kaplan and Norton discuss in the preceding article, the BSC also has evolved into a mechanism that allows financial executives to manage for future growth. This ability reaches well beyond traditional reporting procedures, which focus on the past. "The executive leadership that creates the BSC becomes the guiding coalition for driving change in the organization" write Kaplan and Norton. The results of FEI Research Foundation's study show, indeed, that is quite true in practice.

The executive report contains the results of a survey the research team conducted, along with four case studies. There were 173 responses, which formed the basis for the analysis in the project. Respondent companies had average assets of $6 billion, average annual sales of $3.7 billion, average annual net income of $200 million and 23,340 employees. The research team organized the results into three groups: satisfaction with performance measures; characteristics of BSC users; and BSC impact on organizational practices.

The most interesting results emanate from the section on satisfaction with performance measures. Of those respondents using the BSC, 55 percent were satisfied, while 12 percent were not satisfied. This stands in contrast to users of all performance measurement systems: the survey discovered that only 29 percent of all respondents were satisfied with their current measurement system.

The following are excerpts from two of the case studies.

The famed Mayo Clinic in Rochester, Minn. (MCR), is a renowned center for health-care knowledge and practice. The research team chose MCR because of the high degree of technological complexity involved in its work as a leading service organization.

MCR has long relied on its culture, which encourages team development and anonymity - as opposed to star power - to develop its physicians into team leaders. MCR has used a multiyear strategic plan to guide the physicians and other employees since the mid-1990s. All levels of the organization participate in the strategic development process, and the plan is not strictly financial.

Hugh C. Smith, M.D., chair of MCR's Board of Governors, says, "This deals with quality issues. This deals with scholarship. This deals with patient satisfaction. This deals with actually the other three nonfinancial elements of a balanced scorecard."

Currently, MCR tracks, among others, these nonfinancial performance measures: numbers of peer-reviewed papers published; numbers of presentations; numbers of grants awarded (divided between the National Institutes of Health and industry sources); and breakthroughs in treatments and medicines. MCR's performance measures have been linked to strategy, budgeting and information systems. Most interesting, the nonfinancial measures play key roles not only in the development of the strategic plan but also in the operating plans, which are the basis of the budget.

The researchers on this study summarized that the MCR plan is likely to be successful, because the organization has all the characteristics identified for successful scorecard implementation, and it is a flexible approach. Another important factor in the anticipated success is the strong commitment of leaders at all levels of the organization to the scorecard approach.

Southwest Airlines offers more than great commercials. This service organization, which faces a relatively low degree of technical complexity, has worked from the start to have a very flat organizational structure. As a start-up, the company encountered a great deal of resistance, and the research team identifies that Southwest's fight for survival is key to the development of the culture that supports its BSC.

The driving force behind Southwest's culture is a mission statement that management has laid out to inspire all employees to develop skills and attitudes toward customers that will benefit the individual and the company. Among the cultural values that Southwest implores its employees to follow are a "fun" work environment, an attitude of egalitarianism, an altruistic perspective toward co-workers and the community and a penchant for simplicity.

Southwest buttresses this emphasis on culture by having a Culture Committee, which Chairman Herb Kelleher views as the most important of the 20 committees reporting to the board. The objective of the Culture Committee is to instill and reinforce the Southwest spirit in every employee. The company takes great care in hiring; in fact, the report notes, Southwest "hires for attitude and trains for skills."

Surprisingly, the company, until recently, relied heavily on financial factors when measuring performance. CFO Gary Kelly said that while this reinforced the cost consciousness that is so important to the airline, he now wants to modify this mindset so employees can think more strategically and link actions, such as aircraft turnaround delays, to the impact that has on Southwest's profit-sharing plan.

"We need a better way to connect with all employees," he says. "The financial information that has been produced historically for use by managers obviously doesn't lend itself to large numbers of people."

To achieve this, Southwest began using the budgeting system as a vehicle in developing a balanced set of metrics. The company initiated the effort at the department level, and the degree of development varies between departments. The goal, according to Kelly, is to identify the key performance measures in each segment for the operating personnel. The following nonfinancial metrics are some that have emerged: load factor (percentage of seats occupied); utilization factors on aircraft and personnel; on-time performance; available seat miles; denied boarding rate; lost bag reports per 10,000 passengers; flight cancellation rate; employee head count; and customer complaints per 10,000 passengers filed with the Department of Transportation.

The company distributes these reports, along with budgetary numbers, to selected managers. In response to timeliness concerns for some of these reports, the company has also begun delivering them in real time to enable managers to respond more directly. The ultimate goal of this change is to push information to the "front lines" so employees there can tie their performance to the good of the entire enterprise.

These efforts have been well-received by managers, and the researchers point out that although the organization faces low technological complexity, the top-level managers who are directing this effort acknowledge the complexity in articulating the BSC - or "cockpit system," as Southwest calls it - through a diverse organization. The first challenge has been conquered, as some managers initially opposed to formalizing the process have relented and, in fact, have become among the strongest proponents of the system.

George B. Moriarty is senior editor with FEI's Research Foundation. To obtain a copy of Balanced Scorecard: Linking Strategy to Performance, which features case studies and a complete examination of the survey results, visit the Foundation's Web site at www.financialexecutives.org/rf