Balanced Scorecard - Rail renaissance

You might expect a man employed to keep trains on time to be an engineer or scientist, but Eurotunnel’s Richard Morris has a degree in classics.

He believes the teachings of ancient Greece can be as relevant to business in the 1990s as technical know-how. ‘There’s a lovely Greek motto that hung over Plato’s academy which said “nothing to excess”,’ he explains.

‘In business, it’s important to have a balanced approach. You shouldn’t just measure financial targets or performance targets to find out how well you’re doing. You have to look across the board.’

This mindset makes Morris a firm believer in the balanced scorecard approach.

Devised by Harvard Business School professor Robert Kaplan and Renaissance Solutions president David Norton, this management system enables companies to measure their performance against detailed pre-set objectives. Eurotunnel adopted the system in its technical division two years ago. Improved productivity, fewer delays and greater staff satisfaction have been the result.

A ‘change team’, supported by Gemini Consultants, helped set up the scorecard as part of a major financial restructuring. Eurotunnel had started life as a tunnel-building project and needed to move fast to become a business-orientated company. ‘We’re a slightly different company to most because we’re very young,’ says Morris. ‘We didn’t really have many systems so the change team was instigated to put a lot of those into place.’

The team’s first move towards implementing the balanced scorecard was to work out Eurotunnel’s objectives. These broadly covered four areas: financial targets, the performance of the railway, customer satisfaction, and staff satisfaction.

It then broke down each area into sets of ‘key performance indicators’.

Examples of financial indicators include yield, capital expenditure and duty-free sales. Railway performance indicators include the interval between trains, transit times, the number of stops in the tunnel, and mean time between breakdowns. ‘The first thing that’s important is that your key performance indicators actually measure what your objectives are,’ says Morris.

To ensure this was the case, the team had to translate the key performance indicators into targets that related to individual staff. In effect, the scorecard system they created was a ‘tree of objectives’, with the overall company aims at the top, departmental aims farther down and individual staff targets towards the bottom.

At the very top, the team added a ‘dashboard’ to show if performance in any area was falling behind. ‘An objective might be to cancel only two per cent of trains,’ explains Morris. ‘As an operations man, I have quite a lot of influence over that. So I have an objective in my department which breaks down that cancellation. It says “you cancelled x for whatever reason, y for whatever reason and z for whatever reason”.’

If a departmental objective is not met, this shows up on the dashboard. Then Morris looks at the performance indicators of individual staff to find the root of the problem. ‘At department level you break down your objective even further. You break it down to the bloke who operates the wheel lathe that turns the metallic wheels that we have on the trains, to get them to the right profile. His objectives are: “I must take x minutes over each wheel and I must do y wheels per day”. If he fails on either of those two, he could make the needle flicker on the dashboard.’

Having identified areas that are not meeting their targets, the next step is to find out why and to remedy the situation. Morris attends fortnightly meetings where the managers get together and look at the figures for the previous month. ‘We’ll generally look for areas where 20% of the figures are causing 80% of the problems,’ explains Morris. ‘But I might pick out one or two that are good and say “well done” to the staff. Otherwise, it’s just a tool you beat people with.’

A recent problem brought to light by the tool was the number of stops in the tunnel. Eurotunnel aims to keep these to a minimum, as once one train stops it blocks the route for following services. ‘Trains do break down in the tunnel,’ says Morris.

‘I suppose we have about nine a week. We get the odd one where the train stops because the brakes have a problem. They’re fail-safe so they’ll always stop, but it might take us 45 minutes to sort out.

You can imagine the havoc that causes. We’ve reduced the number of stops by 50% in the last 18 months. I’ve got to drive down that figure a lot further but, with the balanced scorecard, I know what I’ve got to do in order to do that.’

With the detail about the company’s performance clearly highlighted by the scorecard, Morris has found making presentations much easier. He believes that having pertinent information in front of him has helped him build up a greater level of trust with banks and safety authorities. ‘I have a file called the “RJ Morris master file” which includes last month’s key performance indicators,’ he says. ‘I take it to the railway safety authority and I show them the graphs, charts and plans. If you can prove you’re making progress it’s a tremendous assistance.’

Although there are off-the-shelf packages on the market for analysing and presenting the data (see box below), Eurotunnel chose to use its existing IT structure to implement the system. Some information is computer-generated automatically, while other data comes from surveys such as customer satisfaction questionnaires. The results are output as spreadsheets, graphs and pie charts and then analysed. ‘It takes a manager about five minutes each month to work out the figures. That’s important because the guys out on the track aren’t going to want to sit in front of a computer. You’ve got to give them something they can do easily and which they see the sense of.’

Morris believes that most of the staff approve of the balanced scorecard and see it as a positive tool. The implementation took longer than it might have, however, which he suggests is because people were used to doing their own thing. ‘Because we’re young, we’re quite anarchical in a nice, pleasant way,’ he explains. ‘Often on the change team, people would prevaricate and say we need another meeting on this one. Done differently, I would have persuaded everyone a bit more forcibly.’

Paul McCunn, principle consultant for KPMG Consulting, agrees it is useful to have a champion at the top if you are implementing the balanced scorecard. While he agrees the approach offers a great tool for implementing strategy, however, he warns it should not be used to gain extra ‘top-down control’.

He recommends that companies planning to adopt the approach read Ten Commandments of the Balanced Scorecard Implementation. This contains the findings of research by KPMG and professor Claude Lewy of the Free University of Amsterdam into seven companies’ experiences with balanced scorecards. KPMG has now added an eleventh commandment: know why you want to implement the balanced scorecard. ‘The biggest reason people are adopting this approach is because their mate down the golf club has got one,’ says McCunn. ‘It’s a corporate way of keeping up with the Joneses.’

If you’re thinking of implementing a balanced scorecard, it may well be worth taking some professional advice. Companies such as Renaissance Worldwide – which was founded by Kaplan and Norton – and Gentia are possible start points. Jonathan Chocqueel-Mangan, senior manager at Renaissance Worldwide, believes the right advice can help companies make the most of the implementation. ‘A lot of people, having read articles, embark on balanced scorecards and don’t really get the full benefit out of it.

I think 80% of companies are not really getting the benefit. A lot of them are just creating measures; our view is that it’s about so much more than measures.’

At the other end of the scale, there’s the danger that companies may see the balanced scorecard as a solution to all their problems. While a firm supporter of the method, Eurotunnel’s Morris recognises the scorecard is just a management tool rather than the panacea. He also believes there’s a danger in getting introverted towards it. You bury your head in graphs and that is a big, big danger,’

he says. ‘It’s like the motto in Plato’s academy. You’ve got to use it “not to excess”. It won’t run your department for you. It’s a science, not an art. And management’s all about the two.’

IT CONSIDERATIONS If you’re thinking about implementing a balanced scorecard, you might want to buy a balanced scorecard package. Gentia Software and Panorama Business Views are two companies offering customised software, but it’s worth shopping around as there are many more.

Jonathan Chocqueel-Mangan, senior manager at consultants Renaissance Worldwide, believes the wrong type of software could stop a company from getting the full benefits of the scorecard. ‘We have an alliance with Gentia but we wouldn’t always recommend their software,’ he says. ‘It depends on the individual company’s needs.’

The price of the software will depend on how complex the implementation is, the size of the company and whether you want to contract a consultant.

Gentia’s UK marketing manager Roland Spencer puts the starting price for a 400-strong company at around #85,000.

You can find out more on any aspect of balanced scorecards by joining the Balanced Scorecard Technology Council. Co-founded by Gentia Software and Renaissance Worldwide, this is a Web-based forum that enables users, vendors and consultants to debate issues linked to scorecards. ‘We have regular “Webinars” – seminars over the Web – which are proving to be very popular,’ says Gentia’s Roland Spencer. ‘It’s free – people just need to register. We have over 3,000 people registered worldwide.’

The Balanced Scorecard Technology Council website is at www.balanced scorecard.com. Carolyn Fry is a freelance journalist