Creating a Balanced Scorecard For a Financial Services Organization

The seeds of this book were sown in 2008 when the world became all too aware of that hitherto obscure term ‘‘credit crunch.’’ As we watched financial institutions crumble and witnessed the devastating effect of the economic tsunami that ripped its way through global economies, a number of things became abundantly clear. That the world would likely spend many years recovering from what proved to be a ‘‘near depression,’’ and that financial institutions, most notably the banking sector, would need to go through a radical overhaul to be ‘‘fit for purpose,’’ for the new post-credit crunch economy.

What being ‘‘fit for purpose,’’ would look like also began to become clear as the credit crunch unfolded. And as researchers, analysts and economists told the story (or at least the early versions; the actual story has perhaps yet to be told), certain words and terms began to be regularly applied. Financial institutions would, it was repeatedly argued, need to become much more ‘‘accountable,’’ for their performance. Their day-to-day working practices and decision-making processes would need to be far more ‘‘transparent,’’ than had hitherto been the case, and there would have to be a greater understanding of the risks that were inherent in the products being sold and, of course, the strategic choices that were being made.

Moreover, organizations would need to better understand, and communicate to shareholders and other stakeholder groups the non-financial drivers of future financial performance and must be at least as much concerned with managing for the longer-term as driving short-term performance and demonstrate this. And perhaps imbued with the greatest emotions (especially from the general public, who is experiencing most of the fallout from the credit crunch in terms of job losses throughout the economy and massive cutbacks in public services), compensation systems would need to be overhauled to be more reflective of actual performance and the sustainable value that is built.
As we thought about a roadmap for recovery that could contend with these challenges, our thoughts continually anchored back to the Balanced Scorecard. Since its original launch in the early 1990s (and confirmed through our consulting and research experiences) the scorecard has repeatedly proven to help organizations from various sectors and industries to overcome the myriad trials that financial institutions face.

In writing this book, and in our description of the Balanced Scorecard, we have been fully and constantly cognizant of the huge task facing the leaders of financial institutions (most notably of course from the banking sector) over the coming years and the intense scrutiny that will be under from a raft of stakeholder groups, such as shareholders, legislators, regulators and the general public. All will need a lot of convincing before they replace their trust in the beleaguered sector.

Sprinkled with case examples and advice from scorecard experts, this book provides a complete picture of how to build and implement the Balanced Scorecard within a financial services organization. Written as a practitioner’s step-by-step guide the book explains how to build a causal Strategy Map of strategic objectives and select Key Performance Indicators, targets and strategic initiatives from one financial and three non-financial perspectives of customer, internal process and learning and growth, (the core components of a Balanced Scorecard) at both the strategic business unit and devolved levels. In addition to being a framework that enables the balancing of long-term performance stewardship while optimizing short-term efforts, a Balanced Scorecard also drives performance accountability and transparency deep inside the organization.

The following chapters also outline how to put in place the appropriate culture for managing with the Balanced Scorecard (particularly important as we make ‘‘risk management,’’ an integral part of the strategic management process) and how to select the appropriate technology for strategy management (very important for making performance fully visible and transparent). Moreover, we also explain how to rework an incentive-compensation system so it reflects the drivers of future value creation as well as historic financial performance (the most emotive of the change requirements). And we also show how to link the Balanced Scorecard framework and methodology with other key management processes such as the annual budget and other planning processes, how to link strategic and operational processes and how to reengineer management (operational, strategic and boards of directors) review meetings to drive greater clarity, focus and relevance into performance assessments. We also explain how to build the internal capability (through an Office of Strategy Management) that will inculcate the capabilities to manage with a Balanced Scorecard and to make strategy ‘‘everyone’s every day job.’’

This work reflects the many years experiences and field observations of the two authors but would not have been possible without the involvement of others, which we here fully acknowledge. We would like to thank the case study companies that we profiled, and in particular the three from Indonesia and their representatives: Dyah Nastiti Kusumowardani,’s Director of Strategy Planning, Bank Indonesia, Wahyu Eko Wardon, Head of Corporate Strategy, Bank CIMB Niaga and Falk Archibald Kemur, Head of the President’s Office, ADIRA Finance. We would like to thank present and past OTI staff for contributing their knowledge and experience and all present and past OTI clients, who have continually shown enthusiasm for the Balanced Scorecard approach, have benefited from the results and enriched our understanding of how best to apply this framework and methodology within diverse sector settings.

We also acknowledge the thought leadership of people such as Andrew Smart of the U.K.-based management consultancy Manigent and Nigel Penny of the Singapore-based Claritas Asia who were especially useful in shaping our understanding of how to integrate risk management with strategy management within the scorecard framework. Finally we would like to thank Professor Robert Kaplan and Dr. David Norton for their work in developing and evolving the Balanced Scorecard. We truly stand on the shoulders of giants.