A balanced scorecard approach to ranking Atlantic Canada’s TOP 101 companies

Five years ago, Progress introduced a balanced scorecard approach into its ranking of Atlantic Canada’s top companies. The interest was in recognizing the accomplishments of organizations not only in terms of their sales but also in the characteristics that made them leaders in areas critical for long-term success. Over this same time period, we featured different aspects of management that relate to the four elements of our balanced scorecard. The goal was to help with the implementation of performance-management systems characteristic of highly successful organizations

The Progress custom-designed scorecard is intended to provide an objective assessment of what we consider to be the four key performance indicators that will allow organizations to cope with increasing competition and grow into the future. The balanced scorecard is designed to examine performance in several qualitatively different ways, with an eye toward giving organizations much better insight into how well they are managed and what will contribute to future sales growth. Success from a financial perspective, such as profit, return on investment, and share price, is an outcome of certain operational practices and must be examined in the context of the organizational resources and capabilities that will allow for future success. This is what makes the balanced scorecard such a powerful and useful tool.

A balanced scorecard approach recognizes the importance of different stakeholders, each of which values a different aspect of organizational performance. Our balanced scorecard consists of four key areas, any of which can be the basis for superior performance that financial measures alone cannot reveal.

Innovation
The focus: Developing new products and processes that provide competitive advantage.
The benefit: Capturing first-mover advantages, maintaining market leadership, and earning above-average financial returns.

Customer orientation
The focus: Understanding what customers truly value and, therefore, what they’ll pay more to obtain.
The benefit: Minimizing price-based competition, developing innovative products faster than rivals, and satisfying customer wants in superior ways.

Sustainability and governance
The focus: Acting ethically and being guided by objective and transparent strategic leadership.
The benefit: Responding to customer demands to act in environmentally responsible ways and creating systems that ensure organizations act in the interest of their many stakeholders.

Internal management
The focus: Attracting and retaining top talent in an increasingly competitive labour market.
The benefit: Ability to generate ideas, initiate change, and provide strategic leadership.

Although these elements of the balanced scorecard have remained the same over the last several years, each year we focus on a different aspect of this assessment tool not only to highlight the top-performing organizations in Atlantic Canada but also to show some of the different ways a scorecard can be used by organizations to think about their current operations. This year our focus is on innovation in all areas of the scorecard, something that is particularly important in today’s turbulent economic times. 

Harvard Business School professor Michael Porter talks about the importance of being different from rivals in order to be successful. This is the essence of his concept of “strategic positioning,” performing different activities from rivals or performing similar activities in different ways. For either of these to occur, an organization needs to have the capability for innovation and change. In other words, an organization minimally needs to be operationally effective; that is, performing similar activities better than rivals. This alone won’t lead to the success of an organization because of how easy it is for best practices to spread, resulting in widespread efficiency gains that benefit no individual firm for a particularly long period of time. 

Staying ahead of rivals in terms of productivity and efficiency is getting harder and harder, creating a continuous search for temporary competitive advantages of increasingly short durations. We’re seeing situations of “competitive convergence” as organizations study each other and adopt best practices, leading to a lack of difference between firms that actually makes them more directly competitive. The way out of this downward spiral is to be different, and to be different an organization needs the capacity to innovate, not only in terms of products but also in its processes.

Organizations that can sustain innovation look very different from those that cannot. Of course, there’s a degree of uncertainty in the success of any new product or service—uncertainty that can’t be completely removed through good management. However, there are three generic areas in which any innovative organization must excel. These areas weigh heavily in the TOP 101 rankings in recognition of the need to be innovative not only in terms of generating the ideas that result in new products but also in ensuring that good ideas are recognized and acted upon.

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Culture.  Organizations that have a better track record of innovation have cultures that encourage risk taking and reward those who turn ideas into action. People tend to have an ambivalent attitude toward risk because of the chance of failure, not only in financial terms but also in personal ones such as image and reputation. Organizational culture can be viewed as the unwritten rules of an organization, reflecting what is valued and what is so taken for granted that it might never get discussed, let alone questioned. 

Innovative organizations experiment. They recognize that not all ideas will turn out to be good ones, and that the financial success of a new idea can’t be determined without trying it out. A specific way this can be encouraged is by overtly examining failures and making them acceptable outcomes that are necessary along the path to success. Once it becomes accepted that some ideas will be better than others, human resource management practices that reward risk-taking and innovation must be implemented. Here, recognition from senior management and peers is often more powerful than financial rewards.

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Employee development.  Once ideas are formed, they need to be assessed in a way that gives the better ones the support they need. For innovation to truly be part of an organization’s culture, creative people must be in senior positions. Traditional thinking is the greatest barrier to innovation in the same way risk aversion maintains the status quo. Those who are more creative need to be in influential organizational roles; they not only provide good role models for others with innovative ideas but also minimize the negativity of uncreative people who frequently shoot down potentially good ideas at early stages. 

Organizations with a culture of innovation recognize that their human resources are critical to their success. Ensuring that leaders have the characteristics necessary for innovation, and that innovative talent is carefully recruited, can occur when an organization understands what makes an effective innovator.

3

Organizational structure.  Organizations with better track records of innovation typically use teams to develop ideas and move them toward something concrete. Successful teams tend to be diverse, contain a certain amount of disagreement, communicate openly, and remain focused on the task at hand. Those who have worked in these types of teams know it isn’t always easy. 

The benefits, however, are considerable. Teams that include diverse stakeholders will be equipped with the best possible information upon which to make decisions. Team members also bring with them different personal connections and sources of influence, making it easier to accomplish goals. Most importantly, the regular use of teams signals the importance of collaboration throughout the organization.

An organization’s culture forms gradually, but it can be adjusted through consistently articulating and rewarding the desired assumptions and values. Be patient, however, because the unwritten and unspoken rules of an organization don’t change quickly. Many of the TOP 101 companies display considerable innovation, which will position them well for the future. Creating a culture innovation will be most successful when new ways of addressing stakeholder concerns become an everyday part of everyone’s job. With such uncertainty in major world economies and an imminent shortage of highly qualified personnel, creating a culture of innovation that allows organizations and their members to be successful is more important than ever.

David Wicks is a professor of management at the Sobey School of Business at Saint Mary’s University in Halifax. He can be reached at david.wicks@smu.ca.