Creating value with a balanced scorecard: the Mutti case

How can we merge the perspective of management, which needs to set medium to long term strategic objectives, with that of planning and control, which has to translate these strategic objectives into appropriate, consistent measures?
This was the question facing Mutti SpA, an Italian tomato processing company with international standing. To meet this challenge, Mutti resorted to a management tool - the balanced scorecard (BSC) - which has been successfully adopted in many organizations to help convert strategic corporate objectives into a system of measurement to apply at an operational level.

Mutti SpA operates in a particularly seasonal sector where exposure to climate risk is high (the production window runs from July to early September each year); market fragmentation is extreme (with over 170 producer countries; Italy ranks 7th in the world); and the maturity of the sector gives rise to numerous challenges (intense competition, marginal growth, and a strong concentration of sales in large-scale supermarket chains). Around 15%-18% of world tomato production is absorbed by the processing sector, where Italy is quite rightly world leader, seeing that the tomato is recognized as a symbol of Made in Italy agri-food, and Mutti as one of the top players in this market. Constant focus on product quality, process and market innovation and building a brand that is solidly grounded in the concepts of Italianness and quality: all these factors make Mutti a leading competitor on both the domestic and international markets.

The company has grown a great deal both in sales volumes and complexity, and with this growth came an awareness of the need to develop a monitoring system that could not only report on company results but capture the underlying drivers. This need was recognized and interpreted by Cristian Filocamo (CFO) from the very moment he arrived at the company. Internal reporting templates being used to monitor results were based exclusively on income indicators. But they completely failed to factor in the tremendous complexity of both the organization and the tomato-processing sector as a whole. In other words, since the performance evaluation system was one-dimensional, with a sole focus on representing results, it was totally inadequate as far as representing a strategy which, by nature, would encompass several different dimensions of business activities.

These considerations are what prompted Filocamo to decide to implement the balanced scorecard at Mutti in the spring of 2019. The BSC integrates traditional financial performance indicators with measures assessing the drivers of current and future performance. Both parameters monitor company performance from four different perspectives, forming the framework for analyzing all the organization’s activities: financials, customer care, processes and lastly learning and innovation. To design a new model for calculating performance, the organization needs a balanced, multidimensional, integrated set of the metrics cited above. Project methodology also calls for mapping all the indicators used in the company, and selecting the most relevant ones in terms of corporate strategy. There are four fundamental steps in this process.

The first step is to identify and classify the strategy by key objectives, broken down into the four perspectives of the BSC. To choose the strategic objectives, the two teams (management and planning & control) have to come to the table and share their opinions. In this sense, assembling a performance measurement system is not just a technical process (which would fall under the umbrella of planning and control alone). Instead it becomes a managerial process that enables the company to formally quantify its objectives, the prerequisite here being an understanding of corporate priorities. From a methodological viewpoint, in fact, identifying objectives means understanding corporate strategy and translating it into strategic priorities.

The second step is to determine which measures to use for each specific objective within the four perspectives of the BSC. In other words, every objective must correlate to a specific measure. However, the choice of measure must be guided by certain methodological principles. In particular, measures must accurately represent the given strategic objective as a whole, in order to guarantee comprehensive monitoring. But rarely is a single measure capable of fully representing a strategic priority, so more than one is needed for each objective. (The exception here is economic-financial objectives which can be normally represented in a single indicator, given that accounting metrics are built to be concise.) What’s more, the link between the strategic objective and its measure must be clear-cut, which means that every measure must be analytically attributable to the objective it is assigned to.

The third step is pinpointing the cause-effect relationship between objectives and the measures chosen for each one, in order to draw up a strategic map for the company. This map might highlight the quality orientation of internal processes, for example, or the customer or market orientation of innovation and branding activities, or the efficiency orientation in terms of various types of company costs.

The last essential step is to verify that the relationships identified in the BSC are complete and consistent.

In the words of Cristian Filocamo: “Our growth path has to be accompanied by constant attention to efficiency, which has always been a distinctive trait in our company, as reflected in the fact that our objective is constant growth in our EBITDA.”

• Balanced Scorecards can be designed and utilized in different ways depending on companies’ strategy and field of business.
• Companies need to verify the consistency of the measures they choose to apply; this is what strategic maps are for: to create an organic system of metrics.
• As companies try to formalize strategy and translate it into operational measures, the BSC can also serve to validate strategic choices; this doesn’t mean questioning corporate objectives, but instead verifying whether they are mutually consistent, and whether the measures implemented to operationalize them are accurate.