Link Sustainability to
Corporate Strategy
Using the Balanced
Scorecard
By Howard Rohm
Co-founder & President
And Dan Montgomery
Co-Author of The Institute Way Sustainability is an umbrella term for a set of
People and their managers are working so hard structural changes that impact corporate
to be sure things are done right, that they hardly strategy and performance, and are here to stay,
have time to decide if they are doing the right including:
things.” Stephen R. Covey • Growing environmental pressures related to
Abstract increasing population
• Resource scarcity and rising costs for energy
Business must be the major driver of innovation and materials as billions of people aspire to
and sustainability in our society if we are to avoid a join the middle class in places such as India,
“perfect storm” of resource scarcity, climate China, and Brazil
change, and pollution. The “triple bottom line” • Increasing consumer demand for safe and
concept is a response to this need and is meant to natural products
include social and environmental performance • Unprecedented levels of transparency
along with financial performance as a gauge of arising from the Internet and social media
organizational success. However, its use is limited • Stronger demands for accountability and
because it does not address the competitive engagement among the “millennial”
strategy of the firm. A strategy-based balanced generation of workers, and stronger
scorecard system aligned with principles of the demands for improved governance by
Triple Bottom Line offers a way to accomplish boards and other stakeholders
social and environmental goals while integrating
For purposes of this paper we will use the term
them fully with financial performance and
“sustainability” in this fuller meaning.
competitive advantage.
Bob Willard, in his groundbreaking book The Next
The Imperative for Sustainability Sustainability Wave2, identifies a continuum of
In a recent article1, the Harvard Business Review “shades of green” when it comes to companies
compared what it called the “Sustainability embracing sustainability.
Imperative” to other game-changing business
megatrends of the past generation, such as the
rise of the quality movement, the personal
computer, and the Internet. Such game-changing
trends profoundly affect the competitiveness,
and even the survival, of organizations.
1 “The Sustainability Imperative”, by David A. Lubin and Daniel C. Esty, Harvard 2 Bob Willard, The Next Sustainability Wave: Building Boardroom
Business Review, May 2010. Sustainability and corporate social responsibility Buy-in, New Society Publishers, 2005
(CSR) have become closely connected terms. Originally, sustainability referred
to the long-term environmental impacts of human activities, while corporate 2000 Regency Parkway, Suite 420
social responsibility had to do with social impacts. Increasingly, these two are Cary, North Carolina 27518 USA
used interchangeably. +1 919-460.8180 • balancedscorecard.org
Stage 1: Pre-compliance – the company is Despite its growing adoption, the Triple Bottom
focused entirely on profits, cuts corners to Line approach has serious limitations, including:
reduce cost wherever possible and actively
• Lack of focus on the firm’s distinctive
resists regulation and other pressures for
competitive strategy
sustainable behavior.
• A potential lack of connection to the “real”
Stage 2: Compliance – the business manages its business of the firm, as seen by financially
liabilities by obeying the law and applicable oriented executives and board members
regulations, but sustainability is treated as a cost. • Treatment of social and environmental
impacts as an “add-on”, rather than a key
Stage 3: Beyond Compliance – moving from
part of business strategy
defense to offense, the company realizes it can
• Focus on generic activities and outcomes,
pro-actively reduce cost and risk by minimizing
with no guidance on “how to get there from
waste, pollution, energy use and harmful social
here”
impacts.
What’s missing is a link that lets a business make
Stage 4: Integrated Strategy – the firm re-
the connection between sustainability and
brands itself as a company committed to
business success.
sustainability, and integrates sustainability with
key business strategies, capturing added value As Michael Porter has put it: “If corporations were
from breakthrough sustainability initiatives that to analyze their prospects for social responsibility
benefit all stakeholders. using the same frameworks that guide their
business choices, they would discover that CSR
Stage 5: Purpose and Passion – the company is
can be much more than a cost, a constraint, a
driven by a passionate commitment to improve
charitable deed – it can be a source of
the company, society, and the environment
opportunity, innovation and competitive
because it’s the right thing to do.
advantage.”3
Companies that are seeking to move into Stage 3
If you would like to align and integrate your
and beyond must develop a more
sustainability or CSR strategy with your overall
comprehensive way to measure performance
business strategy, and measure and
that includes sustainability. The most popular
communicate with clarity how well you are
formulation for this new view of performance is
executing that strategy, then a strategy-based
the Triple Bottom Line. Simply put, the Triple
balanced scorecard system may be what you
Bottom Line involves planning, managing, and
need.
reporting on business results in three areas:
• Economic: Sales, profits, ROI, jobs created, About the Balanced Scorecard
cash flow A strategy-based balanced scorecard system
• Environmental: Impacts on air, water, waste, involves the collaborative development of a
biodiversity, energy use firm’s “Story of the Strategy”, that identifies the
• Social: Product responsibility, community connection between organizational capacity,
impacts, labor practices, human rights efficient business processes, customer value,
The Global Reporting Initiative (GRI) is perhaps the stakeholder satisfaction, sustainability
best-known and most widely adopted performance, and market and financial
framework for Triple Bottom Line performance outcomes. The balanced scorecard has proven
reporting. As of 2009, more than 1400 to be one of the more enduring business
corporations in 60 countries were producing management ideas of the last 20 years and has
reports using this framework... GRI guidelines been adopted by more than half of Fortune 500
were developed in consultation with a large companies, and many government and nonprofit
number of stakeholders, including non- organizations as well.
governmental organizations (NGO’s). The balanced scorecard uses four strategic
perspectives, shown in Figure 1 –
3
“Strategy and Society – The Link Between Competitive Advantage and
Social Responsibility”, by Michael E. Porter and Mark R. Kramer, Harvard
Business Review, December 2006.
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complementary but distinct lenses for looking at management and measurement. At one extreme,
organizational strategy and performance: measurement-based balanced scorecards are
simple dashboards of performance measures
• Owners, investors and analysts view the
grouped into categories that are of interest
organization as a financial system that
primarily to an organization’s managers and
provides return on investment.
executives. Measurement-based scorecards
• Customers and stakeholders see the
almost always report on operational performance
business’ products and services as a way to
measures and offer little strategic insight into the
satisfy needs and desires at an appropriate
way an organization creates value for its
price.
customers and other stakeholders. Most
• Internal management and staff work on
sustainability metrics, including GRI reports, fall
business processes to efficiently turn
into this category.
resources into outputs that can be sold to
satisfy customer needs. At the other extreme, a strategic performance
• Organizational capacity is the foundation of scorecard system is an organization-wide
the others – the physical infrastructure, integrated strategic planning, management, and
culture, tools and technology, knowledge measurement system. These strategy-based
and skills, and information systems scorecard systems align the work people do with
required to plan, design, and deliver corporate vision and strategy, and communicate
products and services to customers and strategic intent throughout the organization, and
stakeholders. externally to interested stakeholders.
In strategy-based balanced scorecard systems,
performance measures are the result of thinking
about business strategy and what the
organization is trying to accomplish first, to
measure progress toward goals. In strategy-
based systems, the first question to answer is the
strategic question: “Are we doing the right
things?” The operations, process, and tactical
questions come later: “Are we doing things right?”
Figure 2, below, shows the logic of how a
strategy-based balanced scorecard is
developed, starting at the high-altitude of
mission and vision and linking strategy, step-by-
step, to operations on the ground.
Figure 1: The Four Balanced Scorecard
Perspectives
Most “sustainability metrics” are, in fact, internal
process measures, and in some cases support
branding exercises in the customer &
stakeholder perspective. These include
greenhouse gas emissions, water usage, waste
generated, and electricity used. While
important, these are only part of the picture.
The Connection between Strategy
and Performance Measures
The Balanced Scorecard Institute has developed Figure 2: Strategic Planning and Thinking Using the
a Strategic Management Maturity Model™ that Balanced Scorecard
describes the evolution of performance
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Strategic Themes visually how objectives work together in an
integrated, cause and effect fashion to achieve
Sustainability becomes strategic when it is the strategic results associated with each
integrated into the fabric of the organizational strategic theme.
planning and management process. The two
most visible places where sustainability should When building an integrated strategy-based
be highlighted are the organization’s high-level scorecard system, we build a “Strategy Map” for
strategic themes and the strategic objectives that each theme. A strategy map shows the cause
are the strategic building blocks (“strategy DNA”) and effect links among strategic objectives,
of this strategy. across the four perspectives, in a visual map that
tells the “Story of the Strategy”.
A strategic theme is a major “pillar” of the
strategy that directly supports achievement of Figure 3 is a typical strategy map for a
the vision and mission of the organization. A good “Sustainability” theme.
theme is not just a particular objective, but a
linked set of objectives that touches on all four of
the scorecard perspectives. These linked
objectives tell the story of the strategy and form
the basis for communicating the strategy story to
everyone in a consistent manner.
Organizations typically have several common
strategic themes or focus areas, such as:
Operational Excellence, Product Innovation, or
Strategic Partnering. Sustainability could be a
theme as well. As a theme, Sustainability can be
described through each of the four perspectives
of the balanced scorecard, for example:
• From a financial standpoint, sustainability
means staying in business, and creating an
Figure 3: Generic Sustainability Theme Map
acceptable return for investors.
• From a customer and stakeholder Here is the story the strategy map tells:
standpoint, sustainability means satisfying
and providing value for the growing “By creating a strong focus on sustainability in
number of safety and sustainability- our corporate culture, we will align our people
conscious consumers. to develop more eco-efficient products, partner
• From a process standpoint, sustainability with regulators more effectively, and reduce
means managing materials, energy, and the life cycle impact of our operations. In
waste in the most eco-efficient way addition, we build new information technology
possible. capabilities that help us track life cycle impacts
• From an organizational capacity standpoint, more effectively.
sustainability means creating a culture that “By producing more eco-efficient products, we
values sustainability, reflected in the will provide value for the increasing number of
choices that employees make every day. “green” customers in our market, which will lead
Strategic Objectives to increased sales. Our capability for partnering
will enable us to communicate more pro-
Strategic Objectives are the building blocks of actively with the regulatory community,
strategic themes and help make strategy allowing us to be an active player rather than
actionable for employees. Objectives are responding reactively to government directives.
expressed as continuous improvement activities This will reduce business risk. Also, more
that are unique to each perspective and are ecologically safe products will reduce potential
lower in “strategic altitude” than themes. product liability risk. Reduced risk will have a
Strategic objectives are linked together to form a positive impact on our cost of capital.
strategy map, and the strategy map shows
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“Reduced life cycle impacts will lead to direct Here, the sustainability theme is woven into the
cost savings on fuel, water, electricity and bigger vision of organizational success, which
waste disposal. Taken together, increased also includes the other themes. The larger Story
revenues, reduced risks, and reduced costs will of the Strategy might be:
increase our profitability.”
“We will work to improve our culture,
Building a strategy-based scorecard planning encouraging greater focus on sustainable
and management system, and more products, along with more open participation
importantly, a high-performance organization, is and employee engagement. This is necessary
like building a custom house. Figure 4 shows in order to increase our innovation, to create
how the strategic themes – the organization’s products that satisfy emerging customer needs,
Pillars of Excellence – support the strategic to minimize harm to the planet and benefit the
results that lead to accomplishment of the communities in which we operate. Developing
Mission and Vision. this culture will also help us find ways to
increase efficiencies throughout our operations.
This will be supported by better information
systems. Taken together, increased innovation
and operational efficiency will enable us to
produce a better product at less cost,
improving value for our customers. This will
both reduce our costs and increase our
revenues.
“Part of our culture is about recognizing the
need to partner with all of our stakeholders,
including regulators, suppliers, representatives
of the communities we operate in, non-
governmental organizations, and others. This
Figure 4: Strategic Themes are the Pillars that Support the
Mission & Vision
will lead to better stakeholder relationships,
making it easier to pro-actively avoid problems
that may affect our license to operate. This will
Once all the theme maps are developed, they reduce our business risk, positively impacting
are combined to create an overall strategy map our cost of capital.
for the organization. All of the themes, including
sustainability, are merged into a powerful, “Increased profitability will result from
mutually reinforcing business strategy, shown in increased revenue, reduced risk, and reduced
Figure 5. costs.”
Developing Measures
In a strategy-based balanced scorecard system,
measures are a means, not an end. Think of
performance measurement as a process, not an
event. Meaningful, strategically important
measures can only be developed once strategic
objectives have been developed and linked
together on the strategy map.
Figure 6 shows how performance measures,
targets, and initiatives are developed in service of
these objectives.
Figure 5: The Corporate Strategy Map
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Summary
The decision to undertake development
of a balanced scorecard is a decision to
undertake a journey, not work on a
project. While there are discrete start and
stop points along the way, one should not
miss the point that the real value of an
integrated strategy-based scorecard
system comes from the continuous self-
inquiry and in-depth analysis that is at the
heart of all successful strategic planning
and performance management systems.
Start your balanced scorecard with the
idea that you are in it for the long term,
and that changing behavior and
transforming the organization to a higher
level of performance is at least as
Figure 7: A Complete Strategy-Based Balanced Scorecard important as measuring performance.
A balanced scorecard system provides a
The Balanced Scorecard Institute’s basis for executing good strategy well
Framework: Nine Steps to Success™ and managing change successfully.
Building a balanced scorecard
We use a nine-step framework to build an organization’s performance system using the framework
balanced scorecard system. Over the past fifteen years, described here will cause people to think
we have helped over 100 organizations in 30 countries more strategically about their organization
build scorecard systems based on this framework. We and their work. The balanced scorecard
have trained several thousand people from 55 different journey changes hearts and minds.
countries in the approach. The steps and their sequence
are shown in the Figure 7.
About the Authors
Howard Rohm is an author, international speaker,
trainer, facilitator, and performance improvement
consultant. He is the Founder and President of
Strategy Management Group (SMG) whose
companies include the Balanced Scorecard
Institute. Howard has worked with over 100 private
and public organizations and developed balanced
scorecard and performance management systems
to improve organization performance. His balanced
scorecard framework, Nine Steps to Success™, is
used by businesses, nonprofits, and governments in
over 40 countries. Howard has taught and lectured
at five universities, and at the Federal Executive
Institute. He can be reached at SMG’s website
www.strategymanage.com.
Dan Montgomery is co-author of The Institute Way.
An accomplished facilitator and trainer, Dan has a
30-year background as a manager, management
consultant and executive coach. His previous
Figure 6: A Complete Strategy-Based professional consulting experience includes work
Balanced Scorecard with Accenture and Ernst & Young.
About the Balanced Scorecard Institute (BSI)
BSI provides consulting, training, and professional
©2011 Balanced Scorecard Institute, a Strategy Management Group certification services to organizations worldwide
company. All rights reserved. Do not copy without permission. related to strategic planning, balanced scorecard,
KPI/performance measurement, and strategic
project management.
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