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Management Decision34/4 [1996] 14–18

© MCB University Press [ISSN 0025-1747]

Developing an employee balanced scorecard: linkingfrontline performance to corporate objectives

Tim R.V. DavisProfessor of Management and Director of International Business Programmes,Cleveland State University, Cleveland, Ohio, USA

Increasing emphasis is beinggiven to corporate measure-ment systems which integratecustomer satisfaction,process quality, innovationand financial performance.Managers are realizing thatnon-financial criteria (cus-tomer service, process qual-ity, new product development)are as important as financialcriteria in corporate measure-ment systems. These factorsneed to be monitored closelyand their relationship stud-ied. Many executives havedifficulty balancing the vari-ous types of measures atdifferent levels of the com-pany. Provides a detailedaccount of how a balancedset of measures was trans-lated in a large companythrough corporate, group,divisional and plant levels.Concludes that the transla-tion of a corporate scorecardinto a frontline employeescorecard is essential for theimplementation of strategy inmost firms. Provides recom-mendations on how this canbe done.

The author would like tothank Marybeth Connolly, aformer employee of GeneralElectric (USA), for her assis-tance with this article

Managers in large companies often havedifficulty translating objectives, strategiesand performance measures at different levelsof the company. Objectives at the senior man-agement level frequently have no clear con-nection with performance priorities lowerdown. Generally, financial objectives takeprecedence at the top, while production vol-ume, quality and service objectives have thehighest priority at the frontline, employeelevel. How lower level production and serviceobjectives translate into upper level financialresults is usually not clear.

The need to integrate objectives and strate-gies across levels and functions is becomingmore critical as firms compete on a broaderarray of performance criteria[1]. Kaplan andNorton[2] have proposed a “balanced score-card” which integrates measures of customersatisfaction, process performance, product orservice innovation and finance. They contendthat these areas of measurement are of uni-versal importance to most businesses. Man-agement’s task is to balance the emphasisthat is given to these interdependent factorsand ensure that appropriate weight is givento them at different levels of the company.

As yet, few cases have been presented show-ing how a balanced scorecard system can beimplemented at different levels of the firm[3].This article will examine the system that wasdeveloped by the US based, General Electric(GE) Lighting Business Group. It willdescribe the process of developing a balancedscorecard system, starting at the corporatemanagement level and working down, fromgroup to division, to the manufacturing plantfloor.

GE corporate scorecard

In the early 1990s, John Welch, chief executiveofficer of the General Electric Company, pre-sented general goals for the company whichbroadly fit the four categories of balancedscorecard measures. First, from a customerperspective, customer satisfaction was sin-gled out as a top priority for all GE’s busi-nesses. Second, from an internal process andproductivity perspective, all business groupswere required to reduce inventory levels and

increase inventory turns. Third, from aninnovation perspective, GE’s goal was to growglobally through new product developmentand business expansion. Finally, from a finan-cial perspective, the goal of GE was to benumber one or number two in the industry interms of sales and profit or exit the business.The task of each business group, division andplant was to develop specific objectives, mea-sures and plans to achieve these goals. Themeasures are summarized under GE’s corpo-rate goals in Table I.

GE Lighting Business Groupscorecard

The Lighting Business Group (LBG) of GE isa global leader in the lighting industry. LBGmanufactures and sells a complete line oflight bulbs (known as lamps). This group hasa profitable history but has encountered stiffoverseas competition in recent years, particu-larly from Osram. This has affectedprofitability and necessitated performanceimprovement in customer service, productquality and productivity. LBG is organized onthe lines of a functional product team matrixwith product line teams overlaid on tradi-tional functional departments. This cross-functional structure is integrated at everylevel of the group. These teams help todevelop divisional, product line and plantgoals and strategic plans. This team structurewas helpful in the development of a balancedscorecard for LBG.

Based on the corporate directives, the LBGdefined a number of strategic goals. LBGcommitted to a target of 70 per cent of salesfrom overseas markets by the year 2000. The95 per cent on time customer service targetwas embraced as an achievable objective andwas considered critical to meeting theincreased sales objectives. Total cost produc-tivity levels of greater than 5 per cent weretargeted by reducing lamp manufacturingcosts. Financial objectives were also set toreduce working capital from operations, inpart, by meeting the inventory goal of tenturns per year. Also, an ongoing target of 25per cent of total sales from new productsintroduced in the last five years was set.

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Tim R.V. DavisDeveloping an employeebalanced scorecard: linkingfrontline performance tocorporate objectives


These measures appear under the groupgoals in Table I.

North American Products Divisionscorecard

The division of LBG which manufactureslamp products in North America is the NorthAmerican Products Division (NAPD). NAPDcomprises 26 manufacturing locations in theUSA, Canada and Mexico. It is a verticallyintegrated operation in which most of the keycomponents of the finished lamp areproduced in “component plants”. The cross-functional structure of LBG helped to facili-tate goal setting across different departmentsand levels of the company. Group, divisionaland plant personnel participated on multi-level cross-functional teams and came upwith divisional scorecard measurements (seeTable I) that were consistent with the LBG’sgoals.

“Speed” refers to how fast the customer isserved and also includes the inventory levels

required to serve the customer satisfactorily.For all plants, this is measured by the per-centage of on time deliveries. The division’sgoal was to meet the 95 per cent on timerequirement. “Quality” refers to customersatisfaction with products and service (zerostockouts) which exceed all competitor satis-faction levels. “Cost” targets involve trim-ming expenditures in all facets of manufac-turing (i.e. product design, product repro-ducibility and product manufacture). Controlof costs is measured in terms of productivityimprovement from year to year. An annualreduction goal of 5 per cent in cost was tar-geted for the group. “Vitality” is a measure ofinnovation and refers to new products whichhave been introduced within the last fiveyears. In order to maintain its market leader-ship position, the goal for the group and thedivision was to generate 25 per cent of salesrevenue from products which have beenintroduced in the last five years.

The first three measures (speed, quality andcost) were metrics that were defined as

Table IBalanced scorecard measurement system GE Lighting Business Group

Customer Internal Innovationsatisfaction Financial process learningmeasures measures measures measures

Corporate Customer satisfaction Number 1 or 2 in sales; Increase inventory New productscorecard 95 per cent on time; Number 1 in profit turns; process development

global expansion improvement

Group Customer satisfaction Number 1 in sales/profit Ten inventory New products (25scorecard (95 per cent on time); reduce working capital; turns; process per cent of sales last (LBG) 70 per cent overseas total cost productivity improvement five years)

sales > 5/6 per cent

Division “Speed” in customer Total “cost” productivity Ten inventory turns; Vitality; 25 per cent of scorecard service (95 per cent on > 5/6 per cent; reduce process improvement sales in new products; (NAPD) time) zero stockouts; inventory levels improve product design

product “quality”

Plant Speed in customer service Total cost productivity Ten inventory turns;scorecard (external) 95 per cent on > 5/6 per cent; per cent process improvement(OLP) time fill rate; customer direct material yields, quality (number of

complaints (number of labour productivity, defects per million)customer complaints packing; reduce inventory Materials: equipmentper million) survey results levels speed, quality incoming

material, training, assembly processLabour: equipmentdowntime, overtime,production rates

Frontline Customer service Reduce material costs Assembly process:employee (internal) (waste) and overtime, reduce – number of poorscorecard 95 per cent on time increase productivity solders, number of

(production rates) cracked bulbs, numberof bent bases, number ofcracked stems

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manufacturing initiatives. Vitality was con-sidered a marketing, engineering and R&Dinitiative. These departments were responsi-ble for the increased rate of new productdevelopment and improved product design.

Manufacturing plant scorecard

In each plant, measures were developed totrack speed, quality and cost. Differences incustomer requirements and manufacturingprocesses meant that the quality measuresvaried in some plants. Component plantsmainly had internal customers, while theassembly plants mainly had external cus-tomers. Generally, the component plants haddifferent quality measures, while the assem-bly plants shared similar measures. Thescorecard of the Ohio Lamp Plant (OLP) willbe examined here. OLP assembles finishedlight bulbs and employs over 700 people. Theplant has two principal product lines: partype bulbs (outdoor spotlights andfloodlights) and reflector bulbs (indoor spot-lights and floodlights). These products haveproduct line managers who are responsiblefor the manufacturing processes of each line.

Cross-functional product line teams wereused to translate the divisional measures intoa plant scorecard. It is important to recognizethat measurements which are important tohigher level managers – cash flow, marketshare, quarterly sales growth, operatingincome by divisions, return on equity – havelittle meaning for department managers andsupervisors in manufacturing plants. Yetthese people will have a major influence onthe achievement of corporate and divisionalperformance objectives. These objectivesmust be translated into actions and measuresthat department managers and supervisorscan understand and control. Members of thecross-functional teams developed plant mea-sures and actions to coincide with the divi-sional priorities of improved speed, quality,and reduced cost (see Table I).

Customer satisfaction measuresSpeed was tracked by the two measurements:customer service levels and inventoryturnover rates. Customer service levels weremeasured by the percentage of line items(stock-keeping units) filled (line fill rate),with an overall goal of 95 per cent on timeshipments. This measure was calculated forthe total product line, by product family(groupings of similar products within a prod-uct line) and by individual line items. The keymeasures of these three groupings for score-card purposes was the product family cus-tomer service level. Customer service levels

were monitored daily. Weekly conference callmeetings of division staff, plant managersand product line managers reviewed cus-tomer service levels, raw material and compo-nent part availabilities, and potential futuresales levels.

The product quality portion of customersatisfaction was evaluated both internallyand externally. The in-house quality measurefor OLP was defects per million lamps (DPM).DPMs were tracked daily by productiongroup to ensure quick response to processvariations. Targets varied from product toproduct, based in part on the difficulty of themanufacturing process. The external qualitymeasure was based on communication withthe customer. It comprised the number ofcustomer complaints per million lampsshipped (CCPM). Customer complaints weremeasured monthly, and trend analysisrevealed potential problems. Frequent cus-tomer surveys were also carried out to moni-tor customer satisfaction levels comparedwith competitors.

Financial measuresThe primary measure of cost for OLP was“total cost productivity”. This measure, afteradjustments for changes in volume and mix,represented the ability of the manufacturingfacilities to reduce cost levels from the previ-ous year. It was used in developing the annualoperating plans and longer range plans to setoverall targets for continuous improvement.The targeted level for total cost productivitywas between 5-6 per cent annually. OLP had agoal for 1994 of 5.6 per cent. The plant goal forinventory levels was to achieve a specifictarget which, when all plants were combined,amounted to a rate of ten turns per year forthe division. Inventory levels of raw materi-als, in process material, and finished goodswere reviewed on a monthly, quarterly andannual basis.

Internal process measuresEach of the measures and actions had to beplanned together because most of them wereinterdependent. For instance, the cost pro-ductivity target of between 5-6 per cent was afinancial goal. But the means to achieve itwas through internal process, productivityimprovements (improved process design,just-in-time delivery).

Standard management reportsWhile these measures were the primary focusof the plants, upward reporting was not lim-ited to these measures only. Traditionalreporting of items such as actual versus oper-ating plans and accounting variance reportswere also produced. In effect, the creation of

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the manufacturing initiatives did not dis-place previous reporting but, instead, focusedattention on those areas and measures whichneeded the closest attention.

Performance at OLP on the customer satis-faction measures of product quality and ser-vice previously had been close to the targetedlevels. But total cost productivity was waybelow the targeted levels of 5-6 per centannual improvement. Productivity in theplant was flat.

Frontline employee scorecard

The existence of the balanced scorecard forthe manufacturing plants provided overalldirection for the product and departmentmanager and supervisors. But most of thesemeasures represented nebulous goals, at bestto frontline plant personnel. Most hourlyemployees could not explain “total cost pro-ductivity” and how they could help the plantto achieve this year’s goal. It was essentialthat the scorecard be “decomposed” intomeasures that were meaningful to lower levelemployees at the shopfloor level. This led tothe development of a set of measures whichwere termed the “frontline employee score-card”. The measures provided guidance tolower level employees on where they shouldfocus their efforts to influence the plantscorecard measures. Action planningoccurred at both the plant and product linelevels. Employee performance measuresfocused on the few items which had thebiggest impact on the achievement of produc-tivity goals.

Three major cost categories drove total costproductivity at OLP and accounted for 94 percent of the total costs incurred by the plant –direct materials, labour and packing materi-als. Of these three, the single largest elementof cost, direct materials, had the greatestpotential for cost reduction. For this reason,plant personnel needed to analyse materialwaste.

Root cause and Pareto analysis were used toanalyse raw material usage and to determinewhat factors affected yields and shrinkage.Unnecessary raw material consumptionoccurred when defective light bulbs wereproduced or product was lost during the pro-duction process. Observations showed thatmaterial shrinkage was due to four factors:1 speed of the equipment ( the faster the

equipment, the greater the loss of rawmaterial if the process was not closelycontrolled);

2 quality of incoming materials (poor incom-ing quality of raw materials increased thepercentage of defective, finished lamps);

3 experience and training of plant personnel(the more experienced and well trained theemployees, the fewer errors tended to bemade in production);

4 control of the lamp assembly process (poor process control resulted in higherproduction losses).

The most significant cause of materialshrinkage was the control of the lamp assem-bly process. Further root cause and Paretoanalysis were done to determine the types ofdefects in the assembly process. Poor solders,cracked bulbs, bent bases and cracked stemswere the main types of problems found.Improved production procedures were intro-duced to deal with these assembly problems.Scorecard measures were also developed totrack the causes of these production defects.

Root cause analysis process was also con-ducted on labour usage, the second mostsignificant element of total cost. The primaryscorecard measures which were targeted inthis area were equipment downtime, dailyproduction rates, and overtime usage. Causesof these problems were also identified andtracked.

Results in the Ohio Lamp PlantThe early results of implementing a balancedscorecard in the LBG were encouraging,although different plants and facilitiesachieved varying levels of success. The bene-fits of the new measurement system at OLPwere immediate and positive. In 1993 andearly 1994, total cost productivity gains aver-aged close to 1 per cent. Later in 1994 and1995, productivity levels improved dramati-cally to close to the 5/6 per cent goal.

These improvements in productivity werenot achieved at the expense of other score-card measures. Quality measures improvedover the same time period. Inventory levelsfell. Customer service levels dropped slightly,but this was mostly a result of external rawmaterial availability problems. The improve-ments from these projects benefited both OLPand other manufacturing facilities with thesame or similar product lines.

Guidelines for the development ofan employee scorecard

The process followed at GE and OLP can bereplicated in any company. Higher level objec-tives always need to be converted into activi-ties and measures which are meaningful tolower level employees. The following guide-lines are recommended for developing an“employee balanced scorecard”.

First, the employee scorecard should beclosely integrated with the plant, divisional,

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group and corporate measures of the com-pany. This keeps the entire organizationfocused on the same agreed set of objectives.Second, lower level employees should beinvolved in the development of the measures.Employee participation will inspire greaterownership of the measures and the commit-ment to accomplishing them. This approachis compatible with “open book management”in which a great deal of financial and non-financial information is shared with employ-ees[4]. By showing employees how their per-formance influences the bottom line, front-line employees are encouraged to act likeowners and ensure the future of their jobs.

Third, if the plant is unionized, union offi-cials should be included in the earliest discus-sion of the measurement system. Union mem-bers will need to be assured that the systemgives employees more, not less, control overtheir jobs.

Fourth, the measures selected must betimely. Production employees need informa-tion in real time so that they can respond andsolve problems on the spot. Fifth, the mea-sures selected should focus on the criticalaspects of performance. Plant personnelshould use root cause and Pareto analysis todetermine what aspects of the work have thelargest impact on the targeted performancegoals. Root cause analysis should be done onan ongoing basis as part of a company’s con-tinuous improvement efforts.

Sixth, new measures that are introducedshould be balanced with the other scorecard

measures. A typical balanced scorecard in amanufacturing plant will probably includemeasures of quality, volume, material cost,yields and labour usage. These measuresneed to be balanced and prioritized. It is alsoimportant not to create too many measuresthat may overload frontline employees.

Seventh, balanced scorecard measuresshould be entered into the computer so thatcurrent figures can be accessed instantly bypeople in different departments and at differ-ent levels of the company. Balanced scorecardsoftware is now available for this purpose.

The corporate balanced scorecard can be avaluable tool in getting all members of theorganization to focus on a few common busi-ness goals. The employee scorecard is thevital link which can increase the probabilitythat upper level, corporate and divisionalscorecards are translated into frontline mea-sures which employees can achieve.

References1 Brown, M.D., “Measuring corporate perfor-

mance”, Long Range Planning, Vol. 2 No. 27,1994, pp. 89-98.

2 Kaplan, R.S. and Norton, D.P., “The balancedscorecard – measures that drive performance”,Harvard Business Review, January-February1992, pp. 71-9.

3 Maisel, L.S., “Performance measurement: thebalanced scorecard approach”, Journal of CostManagement, Vol. 6 No. 2, 1992, pp. 47-52.

4 Case, J., Open-book Management, Harper Busi-ness, New York, NY, 1995.

Application questions

1 In what ways could an employee balancedscorecard support strategic and opera-tional planning in your company?

2 How could the measures used by the man-ufacturing firm in this case be adapted foruse by a service firm?

3 Why is a multilevel, cross-functionalteam structure important for

implementing a balanced scorecard? Howcould this type of structure be arranged inyour organization?

4 Could the balanced scorecard measure-ment system be integrated with anindividual or group performanceappraisal system? What may be some ofthe advantages?

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