Conduct a strategic analysis.
Establish the overall vision and purpose of the organization. To guide step 3 you may break the vision down into the various perspectives of Finance, Market, Processes, etc. In step 3 we start putting specific metrics to achieve the vision.
In the context of the vision, describe the specific aim you have for a specific point in time - e.g. in 3 years. Summarize this into no more than 5 words. E.g. Beat competition in growth outlook or acknowledged market leader. Ensure that the full description of the strategic aim is available as an attached document.
Define no more than 3 outcomes (clearly measurable and time-bound metrics) the organization needs to achieve for the strategic aim to be reached from each perspective. To ensure the aspect of being a "balanced scorecard", check the trade-offs you are making thoroughly. E.g. Can all metrics be achieved and are not conflicting? If we achieve all metrics, have we achieved the overall strategic aim? Are the metrics relevant to our strategic aim? Steps 3 & 4 are often re-iterative until full alignment has been found.
Define the key metrics for each outcome per function. Check that the sum of the functional targets will result in the company target per perspective.
Map and describe the role of each organizational unit on the Y-axis. The description will contain the key responsibility area of each manager.
Discuss with all heads of departments and responsible persons in the organization the contribution that each should make, establish feasibility by understanding the gap between today and the target, gather concerns and highlight the critical pain points. Adjust targets or find initiatives that can close these points.
Cascade the locked Y-axis to the second level for each responsibility area and map the structure of the responsibility area on the Y-axis of the second level matrices.
Department heads must discuss the contents of Step 7 with their teams and plot them out on the second level matrices in their relevant intersects.
Operationalize the scorecard by ensuring all performance reviews are aligned as well as the reward system.
Use a locked matrix.
Decide how many levels you want to cascade.
Make sure that you do not overwhelm the organization. On the first level decide on one overriding key metric per perspective and function. Ask yourself "What is the ONE thing we need to get right in this perspective or function to achieve our goal?” At the second level you can set 2 or 3 KPIs to measure per perspective, but understand that not everyone in the organization contributes to everything - thus, empty spaces are okay.
Integrating proper data and analytics is critical to derive the right initiatives.
Every metric/target must work in combination with the others, must be measurable and must have a timing attached to them.
It is important to brainstorm together in order to get alignment, but having a first draft assists in the discussions. At the end each function and manager must take full ownership of their contribution.
Limit the number of KPIs per intersect - not more than 2 to 3.
Be clear on who is responsible for maintaining the KPIs.
Each manager should be responsible to cascade the strategy in the same way down to the next level.
It is often helpful to think about the different levels as follows: On the highest level we focus on outcomes, in the second level we focus on management concepts (CRM, production quality management, warranty management, etc.) and on the third level we focus on operational strategies.
Align the story - this means use coherent language across departments. It must be crystal clear how the contribution of each area makes an impact on overall goals.