EFQM and Balanced Scorecard for improving organisational performance

Background to the Research

The research was commissioned by Steve Johnson, Director of Quality Public Services (QPS), Inland Revenue, to examine how use of EFQM and Balanced Scorecard (BSC) may best assist improvements in the future performance of the Inland Revenue. The findings may have potentially wider application to other public service providers.

The requirement for the research came from the introduction of a BSC within the Inland Revenue - an experienced user of the EFQM model. The BSC was introduced in part, to enhance strategic planning and corporate performance management and enable achievement on the governmental agenda of focusing on delivery. A trend observed elsewhere across Whitehall.

These developments indicate that the EFQM model (a universally accepted model of operational excellence) is potentially failing public services in improving organizational performance. The BSC with its focus on defining strategy and its supporting performance measures appears to offer a solution to assisting improved public service delivery. Yet most research on BSC implementation suggests a high failure rate in the order of 70%.

This research therefore set out to explore how EFQM and BSC are used elsewhere in the public and private sectors and whether combined use may maximize the benefits and reduce the weaknesses of each. Further, in adopting such an approach what factors are critical to success.

Approach

The research included a review of the literature on the use of both tools, including the limited but expanding literature on combined use. It also included discussions with some noted academics and practitioners of EFQM and Balanced Scorecard. Internal research was conducted with senior Directors and quality practitioners within IR to form a baseline for any recommendations from the research.

Detailed external research was carried out with four comparators organizations identified on the basis of suitability of size / complexity of the organization, their level of excellence, and their use of both BSC and EFQM. The four organizations selected were:

Siemens Communications plc

Part of Siemens plc, the organization has 2,300 employees, delivering communication supplies and solutions throughout the UK, with a Head Office in Milton Keynes. It has R&D, manufacturing sales and support centres. Siemens plc employs 17,000 people. It introduced EFQM in 1997, and a BSC in 2000. Siemens Communications won the UK Private Sector EFQM Award in 2002.

Royal Sun Alliance (RSA)

RSA has 45,000 employee’s world wide and 23,000 UK employees with a customer base of approximately 2.5 million. IT Services has 1,600 employees. It has used EFQM and BSC since 2001.

Northern Ireland Electricity (NIE)

NIE is part of the Viridian Group, employing 1,260 people. It serves 688,000 customers. It has a Head Office in Belfast, with district areas throughout Northern Ireland. NIE had earlier worked closely with Ulster University on linking BSC with EFQM. It introduced EFQM in 1995 and won the Northern Ireland Quality Award in 2000. It introduced the BSC in 1997.

Swedish Customs

This is a semi-independent agency within Swedish government, with 2,600 employees. The business is managed wholly along total quality, or EFQM excellence principles. It has an integrated Planning and Steering Model (TIPS), which incorporates a BSC, an annual planning cycle and scheduled measurement points.

Finally, limited research was carried out with two other organizations Yell UK ltd and Royal Dutch Electronics via their Internet sites and benchmarking visits.

Review of the literature

EFQM Model

The EFQM model was developed in 1991 (and revised in 1999) originally as a quality award framework but its further use as an organizational improvement tool was quickly recognized. The main objective of the model is to improve organizational performance through self-assessment and improvement activity against 9 major benchmark excellence criteria.

Organizations can use a variety of methods of self-assessment to identify ‘Strengths’ and ‘Areas for Improvement (AFIs)’ for the attainment of excellence. EFQM claim this process of self-assessment provides a systematic learning experience for people within an organization of both excellence concepts and the stages in the quality journey.

Research points to clear benefits in using the model including: an understanding of overall performance; creating an opportunity and focus for improvement; increasing customer and people satisfaction, and improved productivity.

There is little evidence however, that these organizational benefits have translated into substantive performance improvements. This may in part be due to the difficulty in ascribing performance improvements directly to EFQM activity, which includes a number of the softer issues of performance management. The evidence that does exist is of limited scale and there are doubts over its sustainability.

For example, NIST (National Institute of Standards and Technology, who administer the Baldridge award) research in the USA on the performance improvements of Baldridge model award winners (which is broadly comparable to the EFQM model) is often quoted to support much of the UK research on the benefits of excellence approaches. Latest research casts some doubt on such performance improvements. When allowance is made for market and industry factors, the bottom line performance of award winners was 31% below industry benchmarks.

A number of critics explain this lack of compelling evidence of the model’s success on its focus on the internal operation of the business. They argue for a 'right to left' use, of the model beginning with the results to be achieved. With such an approach organizations seek to understand firstly what adds value to customers and then adopt a systematic approach to achieve this.

The RADAR philosophy underpinning the model does advocate a right to left approach, but the actual structure of the model reads from left to right.

It is also arguable whether the improvements achieved through model use are those needed to achieve sustained future performance. The model lacks a future orientation: i.e., it benchmarks the excellence of present day processes. This can create a focus on current performance rather than an assessment of capability for the future. In other words, following the model provides no test of appropriate strategic choice.

A number of issues in using the model can be tracked to its original development as an award framework designed to compare diverse companies, and the later role as an organizational improvement tool. The generic content enables a wide application, but it can lack relevance for individual organizations. This may cause problems for some organizations in terms of understanding and effective implementation.

The difficulty of implementation is a constant theme in the literature. The self-assessment approach leaves organizations with a need to define priorities with which to judge the relative merits of intended actions, but the model provides no processes to do so.

The problems of using the generic framework of the model have led to more recent examinations of the benefits of an organizational specific or customized approach. Research in Europe found 30% of the organizations studied had adjusted the model or developed their own version to reduce resource usage and make the language more relevant to the individual organization.

In summary, improved use of the model appears dependent on managing its strength as an explicit framework of excellence with its weaknesses in organizational relevance and bureaucracy.

Balanced Scorecard

The Balanced Scorecard (BSC) was developed by Kaplan and Norton (1992), from an existing model already in use at the American company Analog Devices Inc. The core driver of the BSC was to move managers away from a focus of short-term financial measures and focus on generating long term economic value.

Their first BSC in 1992 comprised four 'perspectives' to complement and integrate the traditional financial measures with customer, internal business (process) and learning issues. Kaplan and Norton further developed the BSC concept in a series of articles and books moving the use of the BSC from a strategic performance measurement system to the basis for creating an organization focused on delivery of its strategy. The BSC design moved from the simple 4-quadrant representation to a strategy-mapping concept with a hierarchy of perspectives each informing the next level.

There can be many organizational benefits in using a BSC. It clarifies and helps define the business strategy: it integrates strategy with performance measurement and it can provide a comprehensive set of achievable measures, which are clear and understandable to employees. This last benefit is particularly important. In raising the debate and employee understanding of strategy it enables individuals to make a more effective contribution to organizational performance.

An effective BSC can also help change senior management attention from managing the present to leading future performance. Changes in Board discussion time from 95% financial, to 60% strategy and 40% financial have been reported following BSC introduction.

Critics however, point out that the BSC by starting with the strategy neglects the importance of key stakeholders such as suppliers, crucial to business success in the modern networked environment. They argue for firstly engaging in debate with key stakeholders about the appropriateness of the strategy before beginning the process of definition and objective setting.

Nonetheless the BSC is proving increasingly popular with organizations. By 1999 a Bain and Co. study reported that 50% of North American and 40% of European companies were using a BSC.

Like the EFQM model however, there is a lack of substantive evidence about the performance improvements from BSC use. This may be partly explained by the high rate of implementation failure. A number of studies on BSC implementation tend to agree on a failure rate of approximately 70%. This is ascribed to a number of factors including: a lack of top team commitment, poorly defined and too many measures, inappropriate milestone goals, poor deployment in the organization, obsolete improvement processes and impatience for results, with unrealistic linkage to financial results. As one survey concluded the BSC concept appears straightforward, but it represents a challenge to most organizations. To quote the study 'it’s simple but not easy'.

An effective BSC requires the development of complex linkages, which can be difficult to establish (cf. the EFQM model in which the linkages are already articulated). Organizations may also find difficulty in translating the identified linkages into effective operational systems which employees can manage the business with.

Development and implementation of a BSC therefore may need to be viewed as a change initiative requiring effective management including:

  • Establishing top level commitment
  • Developing a robust design process
  • Creating ownership amongst employees and managing resistance to change
  • Developing understanding through education and training
  • Agreeing and communicating the measures to be used

Faced with such challenges many management teams may use less robust development processes, seeking to implement generic high-level Scorecards with little staff involvement and commitment. This top down approach may focus more on the easier to measure perspectives of finance and process, concentrating on efficiency at the expense of effectiveness. It may also contribute to the already high failure rate.

For organizations seeking to utilize the benefits of a BSC there appears the need to develop practical solutions to the complexity of effectively implementing and operating an apparently simple and compelling concept.

EFQM and Balanced Scorecard

Few detailed studies have been conducted on the relationship between the EFQM model and the BSC, with most literature based on theory rather than empirical study. The latest research moves the thinking on from earlier work, which simply saw the BSC as a subset of the EFQM model. This later approach seeks to utilize the benefits of each model by recognizing the different strengths and applying each accordingly in a particular context.

In this approach the two models are used interactively with the strengths and weaknesses identified in EFQM assessments (as part of a strategic appraisal or performance checkpoint process) focused and prioritized through the strategic direction of the BSC.

One of the few detailed studies of practical EFQM/BSC application is McAdam and O'Neill's (1999) partnership study with Northern Ireland Electricity (NIE). The research emphasized the limitations of the EFQM model as a strategic framework in that it was primarily an assessment of the existing, rather than a predictor of future strategy. The model was also seen as essentially bureaucratic and too complicated for employees to understand the priorities.

According to the study the introduction of the BSC within NIE allowed the identification of strategic themes and better communicated priorities for lower levels of the organization, subsequently linked to performance review. Managers more readily identified with the BSC than EFQM as an approach for strategic management.

Activities under the EFQM framework however, did allow a broadened focus of change activity to deliver the strategy and the process of self-assessment helped assess progress against the strategic themes.

Most of the later approaches to the linking of EFQM/BSC are however, generally high level, in that they do not address the practical applications of each approach ¬possibly as many are written by consultants. Managers are left in a vacuum as to how they address and resolve the improvement activity identified under EFQM to meet the organizational goals defined within the BSC.

Summary

In summary, use of EFQM appears to improve customer focus and people management through an emphasis on the management of internal processes via effective leadership. The systems approach to an organization may also help managers and staff take a broader perspective of what constitutes excellent performance. Drawbacks to EFQM use are the terminology in the model; the potential resources required to self-assess an organization and a lack of focus on the specific organizational results to be achieved.

The BSC presents different challenges. The causality evident in EFQM has to be developed by organizations in their own context. This is complex and time consuming, and some organizations avoid the task. The management and measurement processes needed to be developed in a BSC present substantial barriers to many organizations. There needs to be a managed change implementation.

A principal benefit from BSC use is as a comprehensive performance management framework which can define and clarify strategy so it is understood by all in the organization and focus senior managers on future performance.

Integrated use of both models has not been tested substantially in practice. Work that does exist suggests that the two models can be used together as part of the strategic appraisal and performance review process. There is a need however, to test how organizations both public and private sector are using both models to effectively improve performance and delivery.

Click here to read Part 2 of 3

Back to articles

Video

Whitepaper

Slide Share

Follow us on

LinkedIn    Twitter    Facebook

for latest updates

Whitepaper


Stretegic Innovation Whitepaper