The strategy-focused organization: How balanced scorecard companies thrive in the new business environment. . - Readings - book review

Internal Auditor, Feb, 2002 by Ed Pabalan

Robert S. Kaplan

David P. Norton

ISBN: 1-57851-250-6 2000; 416 pages; hardcover; $29-95 Published by Harvard Business School Press

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NTERNAL AUDITORS AND MANagers would do well to read this book. The authors present organizations in the private, public, and non-profit sectors with information on how to execute strategies - the unique and sustainable ways by which organizations create value.

The book's "Balanced Scorecard" model offers five key principles for building a strategy-focused organization:

* Translate the strategy into operational terms.

* Align the organization to the strategy.

* Make strategy everyone's everyday job.

* Make strategy a continual process.

* Mobilize change through strong, effective leadership.

The book includes several balanced scorecard successes from a variety of organizations, including Mobil Oil Corp.'s North America Marketing and Refining Division, AT&T Canada, CIGNA Corp.'s Property and Casualty Division, the United Parcel Service, and the state of Washington. The authors share the results of 10 years of research into more than 200 organizations that have implemented the balanced scorecard.

The authors also provide a framework for managers to develop metrics fox value creation in four different areas: financial, customer, internal, and learning and growth. The financial area covers the strategy for growth, profitability and risk viewed from the shareholder's perspective. The customer area deals with the strategy for creating value and differentiation from the customer's perspective. The internal business process area includes the strategic priorities for various business processes that create customer and shareholder satisfaction. And, the learning and growth area deals with the priorities to create a climate that supports organizational change, innovation, and growth.

Throughout the book, the authors provide examples from various organizations illustrating how the measurement of these areas can lead to the accomplishment of strategy. Auditors who read this book can learn to align audit plans with their organization's strategy. Internal audits that mitigate risks that impair the accomplishment of strategy add value to the organization.

The book also includes the "Levers of Control," which are the interactive control systems, diagnostic control systems, boundary systems, and belief systems that are essential for implementing organizational strategy. According to Kaplan and Norton, these levers are essential for leaders who want to embed the balanced scorecard in organizations. Consequently, internal auditors - who are natural experts and facilitators of internal control and assessment - can provide insight into implementing control and the balanced scorecard.

Kaplan an Norton's Balanced Scorecard concept has been endorsed by the National Partnership for Reinventing Government. The book includes scorecards developed by several U.S. government agencies, including units in the Department of Defense. Although not mentioned in the book, there are opportunities to implement the balanced scorecard paradigm with government Yellow Book audits. Internal auditors can attest and help develop balanced scorecard metrics that lead to more responsive and cost-effective governments. The assurance of key agency metrics information may be a value-added service and contribute to the success of federal, state, and local government strategies.

For managers and auditors alike, the concepts in this book are a road map for discussions about how organizations can create and control processes that lead to diligent corporate governance. As Kaplan and Norton note: "Success comes from having strategy become everyone's everyday job."

ED PABALAN, CIA, CISA, CPA, MBA, CBA, is president of the Tidewater Chapter of the Institute of Internal Auditors and a lead supervisory auditor with the Navy Exchange Service Command in Virginia Beach, Va.