Advice and Insights From A Practitioner

Using the Balanced Scorecard Approach for Better Strategy Execution

Back in the early 1990s, when I worked at CIGNA International and just returned from an assignment in Hong Kong, I learned that a new strategic initiative was underway in the domestic Property and Casualty division.  In fact, this was the first time I had ever heard of the Balanced Scorecard approach and was about the time when the groundbreaking article of the same name was published in Harvard Business Review by Harvard Business School professors Robert S. Kaplan and David P. Norton.

In essence, the Balanced Scorecard (“BSC”) approach is a management system designed to enable a business to formulate strategy and track the results around 4 key perspectives: Financial, Customer, Internal Processes, Learning/Growth.  In my view, it is a holistic approach towards strategy formulation and management where each of the four areas or “legs” are intertwined and relational.

The authors stress that this system they have developed is designed to be more of a learning framework as opposed to a  management system for control and micromanagement.  One of the common mistakes or pitfalls encountered when using BSC occurs when “the quants are running the company” and much more weight is placed upon the financial measurements and results as opposed to when all four areas are treated more or less equally.

Anyway, back to CIGNA P&C. Following Jack Welsh’s lead at GE (who had his businesses aim to become #1 or #2 in a particular industry or depart the company), the stretch goal at CIGNA P&C was “to become a top quartile specialist within 5 years.”  At that time, the P&C division had a combined ratio of 140% ((expenses plus claims)/premiums) and was performing at the very lowest quartile amongst all of its P&C industry competitors.  From 1989 to 1993, the division of 8,000 employees had lost close to US$1 Billion so needless to say, it was a very trying time for this division.  The leader of the division at that time, Gerry Isom, took the helm in 1993 and accepted the task of formulating the turnaround strategy.  He proceeded to develop the strategy around 4 themes with their own stretch goals:

  • Improve the producer productivity
  • Focus on the target markets (Key States in the US)
  • Align underwriting and claims (stress risk selection and adequate pricing)
  • Upgrade underwriting, claims and loss control (integrate, learning)

For this particular turnaround to be successful, he needed to improve the combined ratio by 37 points in just 5 years and chose to identify and focus on four (4) of the value creating aspects of the P&C business that have a direct impact on the combined ratio. Each of his 4 “theme teams” then developed a combined ratio reduction goal for each of the four themes and a time frame to accomplish each.    Well, the good news is – it worked!  By 1998, he had achieved a remarkable 35 point reduction in his combined ratio and in July 1999 CIGNA successfully sold the division for $3.45 Billion to global insurer ACE to form what is now ACE-INA.  Now this case study is featured in many of the follow-up strategy books by Kaplan and Norton such as The Strategy-Focused Organization and The Execution Premium (which are both available at Amazon.com).

Managing Strategy: Four processes, Balanced Scorecard (Kaplan and Norton, 2007).

In addition to CIGNA, there are many other companies that have successfully used the BSC approach as part of their strategy formulation process.  I too, have embraced and successfully applied the BSC approach in the turnaround of a high limit term life insurance business but would like to hear from others.

Has your company used the Balanced Scorecard approach?

If you have used the Balanced Scorecard approach, can you please share your experiences?  If not, would you consider using this approach in the near future – why or why not?

You can email me at: bill@strategicmarketingplus.com

Sources for this posting:

1. Robert S. Kaplan and David P. Norton, “The Balanced Scorecard: Measures that Drive Performance,” Harvard Business Review (January-February 1992): pages 71-79.

2. Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review (January-February 1992): pages 75-85.

3. Robert S. Kaplan and David P. Norton, The Balanced Scorecard: Translating Strategy into Action (Boston: Harvard Business School Publishing, 1996)

4. Robert S. Kaplan and David P. Norton, The Strategy-Focused Organization (Boston: Harvard Business School Publishing, 2001) Pages 56, 73-75 and 334. See an example of a high level strategy to address combined ratio issues and become a top quartile performer on page 74.

5. Robert S. Kaplan and David P. Norton, The Execution Premium – Linking Strategy to Operations for Competitive Advantage (Boston: Harvard Business Publishing Corporation, 2008).  Pages 40,41,63,90, and 296.

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Categorised in: Accountability, Best Practices, Business Strategy, Strategic Plan, Strategy, The Balanced Scorecard Approach

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