Balanced scorecard in intelligence agencies

Balanced Scorecard in

Intelligence Agencies

Davey Bouland

10294538

Final Thesis:

Accountancy & Control

Supervisor: Helena

Kloosterman, MsC.

Faculty Economie

& Bedrijfskunde

Date: 29 June 2015

ii Abstract

This study examines if it is possible to implement the Balanced Scorecard into an intelligence agency, and if the use of the Balanced Scorecard will improve the agency and its performance. Intelligence agencies are very covert by nature to defend themselves against hostile opponents. This makes it hard to change the way of internal organization. A often heard criticism is that intelligence agencies should adopt more of profit maximization companies. In the past, management control models did have improved several companies and organizations. To examine if management control models also work for intelligence agencies, I have chosen the Balanced Scorecard, because it is flexible to use in different companies and refers to multiple components of an organization. This gives the chance to examine a broader view of intelligence agencies and the working of a management control system. Based on a literature review and causal loop diagrams, it is possible to conclude that the Balanced Scorecard will improve intelligence agencies, because intelligence agencies differ as a structure not much from a nonprofit organization. There is only a distinction between secret and open information in particular units. These findings lead to a Balanced Scorecard which should be divided into a secret and open component to respect the covert information. The main contributions to the literature are a combination of intelligence studies and management control studies, and this study could be used as a starting point for future research.

Statement of Originality

This document is written by Student Davey Terrence Bouland who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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List of contents

List of figures ... iv

1. Introduction ... 1

2. The Balanced Scorecard ... 2

2.1. The four perspectives. ... 3

2.1.1. The Customer Perspective ... 3

2.1.2. The internal perspective ... 3

2.1.3. Innovation & learning perspective ... 3

2.1.4. Financial perspective ... 4

2.2. How to build a Balanced Scorecard? ... 4

3. Intelligence agencies ... 5

3.1. Human Intelligence ... 7

3.2. Signal Intelligence ... 8

3.3. Imagery Intelligence ... 10

3.4. Open Source Intelligence ... 11

4. The Balanced Scorecard in nonprofit organizations ... 12

4.1. Who are the customers and what do they need? ... 12

4.2. What are the key elements of internal processes? ... 14

4.3. What could we learn from the organization? ... 16

4.4. What are the financial measures? ... 18

5. The Balanced Scorecard in intelligence agencies ... 19

5.1. Difficulties in intelligence agencies ... 20

5.1.1. False information in counter intelligence ... 20

5.1.2. Allocation of costs to secret activities. ... 23

5.1.3. Given budget by government dependency ... 25

5.1.4. Problem of compartmentalization ... 27

5.1.5. Dilemma of exposing information position ... 30

5.2. Implementation of the Balanced Scorecard ... 32

5.2.1. The customer of intelligence ... 32

5.2.2. The internal processes of an agency ... 34

5.2.3. Possibilities to learn from the agency’s most valuable assets ... 38

5.2.4. The intelligence financial results ... 40

5.2.5. The intelligence scorecard ... 41

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6. Discussion ... 46

7. Conclusion ... 47

Bibliography ... 49

List of figures

Figure 2: Intelligence disciplines: Humint, Sigint, Imint and Osint……….6

Figure 3: Causal loop - Balanced Scorecard main advantages………42

Figure 4: Causal loop - information asymmetry difficulties……….43

Figure 5: Causal loop - Difficulties in showing effectiveness and gain budget………44

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1. Introduction

In the last few years intelligence agencies often came negatively in the news. Mass data surveillance and public scandals were topics that several times came back. And although most people relate intelligence agencies with James Bond, it is not that exciting it should be mentioned that many times. Even though, some activities has a little bit a ‘shaken, not stirred’ image. Further than that it just can be seen as a normal organization. That makes it interesting, because this makes it possible to improve an intelligence agency with normal models, alongside of the secret activities. The negatively news should be transformed in better results. Therefore a management accounting model should be used to improve the internal management control components that negatively influence an agency. The definition of an intelligence agency is an organization who gather, process, and analyze intelligence to provide decision makers with information about possible threats (De Valk, 2005, p. 8). To analyze the management control systems of intelligence agencies, I will use the Balanced Scorecard. This model of Kaplan and Norton (1992, p. 71) contains for different perspectives that should give a Balanced view of the performances of an organization. These four perspectives are focusing on the customers, internal processes, innovation and learning possibilities, and the financial numbers.

The outcomes of this study will help intelligence agencies to improve their internal management control system and give researcher of this subject the chance to see how a normal management control model can be implemented into an organizations with a highly secure environment. That should give other insight in how to use the Balanced Scorecard with difficulties that arise within intelligence agencies.

Therefore my research question will be: Is it possible to implement the Balanced Scorecard into intelligence agencies and will this improve their internal management control? In this study several literature will be used, but the sensitive subject makes it a kind of new area, which is not exactly examined yet. Therefore, it partially created new insights to connect some literature and fill gaps within the open literature.

Based on the found literature and the made connections between the sources it can be concluded that the Balanced Scorecard could be implemented into an intelligence agency. Therefore the Balanced Scorecard should be split into two components. An open component and a component with secret results. The Balanced Scorecard is used, because Hoque and James (2000, pp. 3, 11) argues that this model is mostly used at large organizations and organizations that are in the beginning stages of the product-life cycle. An intelligence agency

2 is mostly a large organization and an intelligence report is often an new product, because this will be different each time it is produced. For the creation of the Balanced Scorecard, I used the model for nonprofit and government organization created by Niven (2011, pp. 167-189). This model described a general approach to implement the model in these organizations. So it could be applied also in the intelligence agencies. On the other hand, literature shows a few difficulties which could not be solved entirely. This makes the use of the Balanced Scorecard into intelligence agencies questionable as a single management control model.

The remainder of this study is structured as follows. In section 2, I will describe briefly the Balanced Scorecard in general and its four perspectives. In section 3, the intelligence agencies are described. Here, the four main key elements how to gather intelligence are described. The model of Niven will be discussed in section 4, which is divided into the four perspectives of the Balanced Scorecard. In section 5, consists of three parts, which helps to build the Balanced Scorecard for an intelligence agency. These three parts are difficulties of intelligence agencies, the Balanced Scorecard in intelligence agencies, and a causal loop diagram to show several causalities. Section 6 and 7 contains a discussion and the conclusion of this study.

2. The Balanced Scorecard

The Balanced Scorecard is a model which contains four perspectives which give management a balanced view of organizational performances and give knowledge where in the organizational focus should be improved. These four perspectives focus on customers, internal processes, learning possibilities, and financial numbers.

The Balanced Scorecard was first mentioned in an article in 1991 by Robert Kaplan and David Norton. They wanted to create a more balanced view of the different performance measurements in an organization. Therefore they created the Balanced Scorecard (Kaplan & Norton, 1991, p. 71). In the years thereafter they improved their model, because some companies used it for further purposes than only measuring. They used it for creating a long term strategy which could be translated in short term objectives (Kaplan & Norton, 1996a, p. 75). According to Kaplan and Norton, they created a model that allows managers to look at the organization from four different perspectives to measure and create a business strategy. These perspectives limit the number of measures and avoids information overload. Only the most important measures are the focus of this model. The measures used in the Balanced Scorecard are divided in the Customer perspective, Internal perspective, Innovation &

3 learning perspective and Financial perspective. In section 2.1 these perspectives will be explained. Section 2.2 explains how to build a Balanced Scorecard.

2.1. The four perspectives.

2.1.1. The Customer Perspective

According to Kaplan and Norton (1992, p. 73) the customer perspective is the most important perspective, because this will measure how the organization will create value for customers. Customers are mostly concerned with the time the product will be delivered from the moment of order. Also the products quality and the organizational service will be important to create value for a customer. Besides these, an organization measures also the costs to determine the selling price. These main value objectives are mostly be measured by customer surveys and customers valuation of the company. An understanding of the needs and expectations of the customer is necessary to focus and create the appropriate value for the right customers. To create this value, good internal processes are needed to obtain these objectives.

2.1.2. The internal perspective

The second perspective of the Balanced Scorecard is the internal perspective, which contains measures and objectives to improve the internal processes that have the greatest impact on customers satisfaction (Kaplan & Norton, 1992, pp. 74, 75). To measure these results within these processes, an organization is able to understand which processes are creating the most value for customers and how to improves these processes. The great advantages of this perspective is that an organization could better achieve goals made by top management and a better implementation of the objectives at lower levels. Common measures used by organizations are cycle time, quality, employee skills, and productivity. To improve the internal processes, an organization should constantly looking for ways to innovate and learn about their organization.

2.1.3. Innovation & learning perspective

The third perspective of the Balanced Scorecard is the innovation & learning perspective and focusses on innovation and learning opportunities in the organization, because competitive standard keep changing over time (Kaplan & Norton, 1992, p. 75, 76). These opportunities ensure more customer value and improved internal processes. To measure grow opportunities, a company is also able to set goals for future improvements for their existing processes.

4 Common measures are final scores of training tests, increase rate of products per period, and organizational culture by an employee survey. With this perspective, results in the previous two perspectives will also better, and in the end this will lead to improved financial results which are measured in the financial perspective.

2.1.4. Financial perspective

The financial perspective of the Balanced Scorecard measures the financial results of the organization. According to Kaplan and Norton (1992, p. 77) many critics say that financial measures do not improve customer satisfaction and internal processes. These financial numbers are only a result of operational actions and its success is the consequence of doing these actions in a good way. But to fully understand the organizations, this perspective is necessary. Kaplan and Norton explains that the linkage between financial measurements and the other perspective is uncertain. So the advantage of the financial perspective is an overview of the financial results and to make a comparison with the other perspectives to conclude if an increase in operational management lead to better financial results. So financial results could be measured to see if the strategy has worked out. Common measures are profitability, financial growth, and shareholders value.

To implement these four perspectives, I should use steps which helps to implement the Balanced Scorecard into an intelligence agency. Therefore, it is needed to work from a general theory to a more specific model. To begin with a general idea, I make use of the implanting steps given by Kaplan and Norton.

2.2. How to build a Balanced Scorecard?

This section provides a quick explanation about the building blocks of a Balanced Scorecard and the purpose of it. With this knowledge we are able to create a Balanced Scorecard for intelligence agencies in section 5.

Kaplan and Norton (1993, pp. 138, 139) explains after creating the Balanced Scorecard how to build such a model for a specific company. They take eight steps to build this model. These steps are preparation, first round interviews and workshop, second round interviews and workshop, third round workshop, implementation, and periodic reviews. These are shown in figure 1.

5 Preparation Interview round 1 Workshop round 1 Interview round 2 Workshop round 2 Workshop round 3 Implementation periodical review

Figure 1: Steps to create a Balanced Scorecard into an organization

In the preparation step the organization defines which business units are applicable for the four perspectives of the Balanced Scorecard. They show the importance of a good understanding of the organization before the first interviews (1996b, pp. 300 – 302). So in this study, a good understanding of intelligence agencies is necessary before trying to define a specialized Balanced Scorecard. Therefore it should also be important to find linkages of different components of an intelligence agency to see synergies or constraints.

Step two till six contains multiple interviews and workshops where several people from every unit in the organization and other stakeholders are being asked about the vision, mission and strategy of the organization and which measures should be included in the model. To simulate these steps, I should think about several problems and points which can improve an organization to define measures and objectives for an intelligence organization. Therefore the model of Niven should be discussed in section 4.

Step seven is implementing the Balanced Scorecard into systems, databases and all involved units. The last step is reviewing the results of the model periodically (Kaplan & Norton, 1993, pp. 138, 139). These last two steps, I can’t simulate because of the lack of internal knowledge about a specific intelligence agency. But this model should eventually help agencies to implement the Balanced Scorecard themselves.

The activities to gather intelligence by an agency could be different and it divided into four components. This could be an influential factor to the Balanced Scorecard.

3. Intelligence agencies

The main objective of an intelligence agency is gathering intelligence. Intelligence is often described as a product or process, but it can also be described as an analysis of information processes. This can be done by public and private organizations to prevent organized crime, fraud, and distortion of a public order (De Valk, 2005, pp. 8-10). Intelligence is gathered information, which is processed and analyzed for decision makers. Tasks of intelligence agencies are collecting information and creating reports. These tasks are often characterized by seven factors. Firstly, interdisciplinary methods. Secondly, research is orientated on future outcomes that causes speculative data in intelligence reports. The third characteristics is often

6 inaccessible data. The small chance of an event which has high impact if it happens is the fifth factor. Specific nature of data, and complicated control due to secrecy is also an characteristic. A seventh characteristic of intelligence agencies is that these organizations are suppliers. So the agency will not decide how the provided information is being used.

A often used principle within an agency is the need-to-know principle. In the most basic explanation this contains that information can be shared only to those who need the information to execute their task. This is necessary to keep the information covert. Sometimes this is needed, as we will see in the different forms of intelligence gathering.

De Valk (2005, pp. 18–21) summarizes these different forms in his article. He mentions intelligence gathering via open sources, Human Intelligence and Technical Intelligence. Signal and Imagery Intelligence are the most important within the Technical Intelligence, because these provide the most information. Human Intelligence and Open Source Intelligence are often used at low intensity conflicts. The most clear example is the Cold War, where there was a conflict but the intensity of war was relatively low. Signal Intelligence and Imagery Intelligence are often be used at high intensity conflicts. A good example is the Second World War, where signal interception made it possible to end the war. This is represented in figure 2.

These four intelligence technics will now be examined to understand how an intelligence agency works to gather their intelligence and how this will affect the Balanced Scorecard. This section describes elements which could be relevant to keep in mind when creating the Balanced Scorecard.

Figure 2: Intelligence disciplines with high intensity conflict circle and low intensity conflict circle to understand the distinction between Sigint and Imint on one hand, and Humint and Osint on the other hand.

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3.1. Human Intelligence

Human Intelligence, also called Humint, can be seen as the type of gathering which comes closest to the classical espionage (De Valk, 2005, p. 19). Humint defines all information gathered by a human. So someone gathering intelligence from behind a machine is not Humint, but recording with a cellphone is. The activities of Humint range from direct reconnaissance and observation to interviewing informants and other spies. Also infiltrating is a form of Humint, which is often be used in counterintelligence. The most well-known example is the Cambridge Five, who infiltrated the British secret service and reported to the Soviet Union.

According to De Valk, Humint is not always covert. Activities like interviewing journalists and debriefing of defectors could be openly accessible. Overt Humint does not mean this source of intelligence is open for everyone, but these intelligence gathering is not secret.

The covert side of Humint could include recruiting people for infiltration, hire people for information gathering or bribe people for answers. Several techniques could be used such as the hiring of a salesmen who travel to a targeted country or using honey traps, which are women who seduce men and let them reveal information.

Sometimes intelligence agencies are reliable allies. This also applies to Humint. Also cooperation with geographically important states may create a higher scope of Humint. Sometimes this asks to work undetected in a friendly country (Gill & Phythian, 2006, p. 68). Humint and other intelligence techniques are also used for gathering information about friendly countries. This will help to expose certain risks and reveal the friendly country’s contacts. Sharing information will also enhance intelligence gathering, but as we will see later compartmentalization makes this difficult. Also the Balanced Scorecard is affected by this problem.

Chambliss (2005, p. 6) argues that good Humint can reveal enemy’s intentions about how, when and where to strike. And in a time of unknown enemies this will be more important. A good example comes from the war in Bosnia and especially from Srebrenica. The Dutch division of the United Nations was stationed in Srebrenica and saw the attack of the Serbs not coming due to a lack of Humint. This can costs a lot of money, which will affect the financial perspective results.

To conduct human intelligence it takes a long waiting time to create a good position. The intelligence agent should create a good relationship with its source. Sometimes this will ask for protection, money or other forms of incentives. Also when the mission is over, it is

8 important to hold the relationship and taper the contact. This takes time, but it will ensure the source will be available for the agent in the future. Sometimes this is an ethical issue, because it involves human daily lives. There is an example of an agent who infiltrated the targets family by marrying his daughter. The agent’s father in law had a high position in a communist party. After the end of the Cold War, the source was not needed anymore, but the agent had already children and a happy household. To break down this live would take years and was an ethical issue. This asks for a longer duration of some measurements.

3.2. Signal Intelligence

Signal Intelligence is often called Sigint. According to De Valk (2005, p. 20) this contains several types of electronic interceptions, processing, and analysis of these electronic interceptions. There are a couple advantages of Sigint which are mentioned by Aid and Wiebes (2001, pp. 3–10).

The first advantage is that Sigint is a passive intelligence collection technique. The targets doesn’t know their signals are being intercepted. Even this passive source is also accessible from miles away, so mostly it stay undetected and doesn’t involve political risk. The second advantage is its objectivity and reliability, because the signals will be recorded immediately without the subjectivity of an agent. A third advantage mentioned by Aid and Wiebes could be its fast nature of making information available for consumers. They described this for the Cold War where Sigint was faster than Imagery Intelligence, but nowadays this advantage will not be rate as high as then, due to the improved techniques of satellite communication. The fourth advantage is flexibility. Users of Sigint are able to move their focus to another area quickly while other intelligence types needs time to change their location. A fifth advantage could be the high profit/cost margin. Sigint is expensive due to all the machines, but it will generate fast effectively intelligence. These advantages means for the Balanced Scorecard that measuring will be more easily than Humint, but there are some shortcomings to Sigint.

Besides these advantages Aid and Wiebes also argue a few problems and limitations of Sigint (2001, p. 12 – 21). The secrecy of Sigint is the first problem. The need to protect sources caused limited distributions of Sigint intercepts. It created compartmentalization, which is a difficulty we see in section 5.1.4. The second limitations of Sigint was its diminished utility. Because of the forced secrecy, many US government officials and military commanders often didn’t know to act on the Sigint signals. This diminished the utility of

9 Sigint to its consumers, and could be difficult to measure the effectiveness in the internal perspective. A third problem was that a lot of consumers didn’t believe Sigint. This was caused, because the consumers mostly didn’t understand and didn’t trust the source. Another limitation of Sigint was the fragmentary nature of Sigint. Sigint will gather different kind of data which pertains to a broader view, but Sigint is not able to give the broader view. So analysts always try to bring together the whole puzzle which is hard because most of the data obtained should also be decrypted, which make the understanding and measurement of it difficult. This is in line with another disadvantage, namely too much information. Sigint can provide a lot of information, but it can result in a large stockpiling of paper. A sixth problem is the lack of timeliness. Even if Sigint is very fast, it can be very slow to reach its customers due to a lot analysis. A seventh limitation of Sigint is the lack of Sigint. Sometimes Sigint cannot be used, because signals could not be intercepted by changing codes or mountain area. Fragility of the source is an eight problem of Sigint. Sigint is in some cases vulnerable to damage caused by news leaks, treason, and defections. This also could contains technical issues. A ninth problem mentioned by Aid and Wiebes is deception in communication. This happens when the enemy knows their signals are intercepted. Though this is dangerous for both sides, because both sides could be reveal knowledge about gained information or infiltrated sources and they could both play the game. So neither would know who is fooling the other.

Nowadays Sigint is used to fight terrorism, but there are critics who says the intelligence community is relying too much on Sigint (Aid, 2003, p. 95). Due to the passive element of Sigint, it was not contributing to fighting terrorists. So Sigint departments should give more information to the military division to improve tactical warfighting capabilities.

A new problem created in the last several years is the shortages of Sigint personnel. The fight against terrorism asks for analysts who were specialized in terrorism and their linguistics, but mostly top management doesn’t have a view on given satisfactory incentives.

Another well-known criticism these days comes after the Snowden disclosures (Lyon, 2014, p. 2, 4, 5). Society has become aware of big data surveillance which was collected by Sigint agencies and departments. This amount of collecting asks for enormous capacity to store this data and process it. This will make it hard to detect treats. Also the reputation is negatively be influenced which harms intelligence agencies, which could be solved by the Balanced Scorecard as we will see in section 4.2.

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3.3. Imagery Intelligence

Imagery Intelligence, also called Imint, collects imagery products to support war-fighting operations and other activities (De Valk, 2005, p. 20). This technique exploits, develops and disseminates multi-sensor images. This technique is not only for collection purposes, but also to determine the number, type, dimensions, locations, and the significance of subjects, according to De Valk. This way, transportation routes, networks, industrial installations, and military offensive and defensive installations can be exposed. To collect these images intelligence agencies and the army make use of reconnaissance from planes, satellite imagery, or photographs from borders. This sort of intelligence is very useful for military divisions while in combat.

According to Wiebes (2002, p. 17, 49) Imint is, even as Sigint, could verify intelligence obtained Humint. In a high intensity conflict Imint is useful to react directly to the operational progress of war-fighting. Unmanned aircraft is also mentioned as an Imint technique which was used during the war in Bosnia, Today these unmanned aircrafts are called drones, and serve as suppliers of the war against terrorism. These drones could also bomb ground targets.

Limitations of imagery intelligence satellite is the choice between let the satellite focus on one point on the ground or let the satellite follow an orbit. If a satellite follows an orbit, it could be somewhere else if war-fighting breaks out in another area. This is also true for a satellite that has one focus point. So as an example given by Wiebes (2002, p. 293) he concluded that following everything live was not possible in the Bosnian War.

Also Imint information was limited by bureaucratic obstacles when it came to analyzing and sharing this information with other agencies. A third and fourth problem mentioned by Wiebes (2002, p. 294) was countermeasures of the enemy and weather that could hide certain activities. Another problems is the time to analyze the images. To compare images to earlier ones and see if something changed involved high intensively labour.

To conclude this Imint section, it should be noted that Imint is very expensively due to the enormous machines that are involved, like satellites, airplanes and drones. The implementation of satellite Imint can be very slow, but from there the view could be enormous and undetected. So in the beginning, the effectiveness of satellites cannot be measured well. Airplanes and drones could be detected, but have a lot more freedom to operate in different areas and can are used much faster, but bring more risk. The invention of drones makes it possible to enter hostile territory without risking a pilots life. This makes the use of Imint in the war against terrorist still useful.

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3.4. Open Source Intelligence

Open source intelligence, often called Osint, is intelligence gathered from all sources that are publicly available for everyone. De Valk (2005, p. 18) mentioned that Osint could come from anything that is published, broadcasted, and electronically accessible. If these sources cost money it also falls under Osint, because it could be accessible for everyone. Osint delivers most of the information and is relatively cheap in comparison with the other intelligence techniques. Osint can legally be obtained through open access, but also by buying illegal products to study the product. An example given by De Valk is a missile which is bought and be studied to understand the hardware and software.

During the Cold War, Osint was a major part of all intelligence gathered by western intelligence agencies. According to Mercado (2004, p. 46, 47) the CIA searched for clues of Soviet technical capabilities and found a lot of books and periodicals. Mercado follow his study to the world of today. Since the end of the Cold War the revolution in information technology expands immense. This creates the opportunity to access more data with less cost. This explosion of accessibility opens some covert measures used in Humint, Sigint and Imint. For example, images of areas are accessible via Google Earth and information about most persons is summarized on Facebook. Even information from other countries is easy to access via the internet.

Intelligence retrieved from social media platforms is calls Socmint. Omand, Bartlett and Miller (2012, p. 803) argue that most people increasingly reveal information about themselves on social platforms, which can be used by intelligence agencies and other companies. Intelligence agencies could use Socmint to get information about crowds, research and understand certain events, to get near real-time situational awareness, to get insights into specific groups, and to identify criminal intent or criminal elements (Omand, Bartlett & Miller, 2012, pp. 804 – 806).

This open availability of persons ask a little attention of Humint agents which are mostly operate in secrecy. According to my own study it is necessarily for Humint agents to have an online identity to not stand out. This asks for a normal profile without any information about a relationship with the agency (Bouland et. all, 2014).

So Osint seems increasingly easy to gather for intelligence agencies. This should give agencies the opportunity to give more exact information within their intelligence reports and increase customer value.

12 These four types of intelligence gathering which includes the main activities of an intelligence agency, ensure also the existence of difficulties which influence the creating of a Balanced Scorecard.

In the next section, I will examine the four perspectives of the Balanced Scorecard in nonprofit organizations. This will help to combine the knowledge about the intelligence gathering activities and the Balanced Scorecard.

4. The Balanced Scorecard in nonprofit organizations

In this paragraph all four perspectives of the Balanced Scorecard would be examined in nonprofit and government organizations. I described the model of Niven to make clear how to implement a Balanced Scorecard into an organizations without the goal of making profit. The customer perspective, internal perspective, innovation and learning perspective, and financial perspective will be discussed in section 4.1, 4.2, 4.3 and 4.4 respectively.

4.1. Who are the customers and what do they need?

The customer perspective should focus on the needs and expectations of the customers to increase customer value. Kaplan (2001, pp. 353, 360) stated that most nonprofit organizations rely heavily on their financial measures such as donations and operational expenditures, but for success they should measure how to meet their goals on an effective and efficient way. Therefore they should place the customer perspective as their most important measurements.

Kaplan (2001, p.361) mentions further the distinction between the donor who’s paying for the service and the receiver of the service. Mostly in profit maximization organizations this is the same person, but in this case there is a distinction which divide the customer perspective in a donor component and receiver component. Organizations should satisfy both parties. In government organizations the donor is mostly the government which provide a budget for a particular service.

According to Speckbacher (2003, pp. 278, 279) nonprofit organizations could also attract new donors by using the Balanced Scorecard to set objectives and make clear how to achieve their main goal. Also public trust in the organization could enhance if there are clear objectives set by measurements of the Balanced Scorecard.

Niven (2011, p. 33) makes clear that a nonprofit organization will only see their mission reached with periodic steps which bring them closer to the achievement of that mission. Therefore the measurements within the four perspectives are more important for nonprofit organizations than for profit maximization companies. Niven says also that the most

13 important perspective is the customer perspective. Organizations should therefore determine who their customers are, or the receivers as Kaplan would say. But Niven (2011, p. 34) says it is not always clear who the receiver is or who you serve. In fact, sometimes the one you serve will not notice you served them. An organization like WNF helps animals but serves the donors who want to support animal rescuing, but they won’t know exactly when an animal is rescued. Also when a police officer is arresting a criminal, this will be beneficial for the common citizen without a directional service. So it is important for an organization to define who the customers are. And which actions serve which group, donors or receivers. This will make it easier to explain allocated resources decisions, new focusses on human capital, and create an unified mindset in obtaining the organizations goals, according to Niven.

To do this he say the organization should focus on a group that directly benefits from their products or services (Niven, 2011, p. 167, 168). So critical research is necessarily to define this group. Also it is necessary to define when the organization is not needed anymore. This gives you a better understanding about who really the customer is. In the WNF example, this organization would not stop rescuing animals if all the donors would stop donating. So their actual motivation is rescuing the animals.

The next step for creating measures in the customer perspective is according to Niven (2011, p. 169) is to define what customers expect. A good understanding of the customers need is necessarily to create good measures. In the example of less waiting time, the measurements could be clear to reach this.

Niven mentions also that the customer value propositions, which comes from the profit maximization world, are applicable in nonprofit and government organizations. These propositions are product leadership, operational excellence and customer intimacy. Product leadership means to be the market leader in product and service design. Operational excellence is value creation through a huge assortment and great prices. Customer intimacy is building a customer relationship for a long time. These strategies could be applied to the nonprofit and government organizations. Product leadership could be necessary to improve the product or service the organization is providing. For example, investigation techniques at a police department. Operations excellence is necessarily to save costs when budgets or funds could get cut. Customer intimacy is necessary to create trust at your customers. When striving for one or more of these strategies an organization could improve organizational performance. Niven warns that organizations should always have some sort of minimal base level of the other two strategies when focusing only on one strategy.

14 For nonprofit and government organizations the most things are the same for the measures within the four perspectives, but for some specialized government organization the Balanced Scorecard is used quite differently. The Sweden Law Enforcement made their own Scorecard customized for their duties. They created the four perspectives citizen, staff, success and resources, which are corresponds respectively with the customer, internal, learning and growth, and financial perspective. In the rest of this section the citizen perspective will be discussed, and the rest of the perspectives in their corresponding sections.

So the main goals of the customer perspective are define who the customer is, and what they expect. To create the product or service which a customer expects, results in the internal perspective should also perform well.

4.2. What are the key elements of internal processes?

Internal processes are necessary for the operational activities within an organizations. Kaplan (2001, p. 357) describe the internal perspective in general as measurements of operating performance of critical processes that create customers value and reduce operating expenses. Mostly these measures are defined as cost, quality and cycle time. Internal processes measurements could also focus on innovation for new products and services. According to Kaplan, also in nonprofit organizationw it is necessary to involve people from all departments to include day-to-day activities and objectives, to create a Balanced Scorecard which can be communicated successfully into the whole organization (2001, p. 363).

Speckbacher (2003, p. 277) mention that management of an nonprofit organization should create an interactive process which involves all the stakeholders. Like mentioned earlier, it is not always clear who the customer is. Therefore it is not always clear on who to focus with internal processes.

When building a Balanced Scorecard for a nonprofit organization, we should ask ourselves which business processes are the most important to create impact for customers and at the same time meet budgetary constraints, according to Niven (2011, p. 35). The main goal is improving internal processes that lead to improved product or services for the customer. Mostly these measurements come from the customer perspective where you define how to increase customers value. In the internal perspective organizations define how to reach that.

Niven (2011, p. 173 – 179) mention core processes that should be considered when developing objectives. These are understanding of customers, innovate constantly, marketing and branding, quality offering of product or service, work efficiency, partnering for success,

15 fundraising, monitoring reputation, risk management, and other sources of internal process objectives. These processes will now be discussed.

The first process that should be considered is understanding the customers. This contains knowing what your customers want and who they are. Mostly this is defined in the customer perspective, but is necessary to know for creating measures in this perspective.

The second core process mentioned by Niven is innovate constantly. This contains changing with the environment and customers’ needs. Even the largest division of the government should innovate constantly. This can be done if organizations measure innovation in processes. Also cross-functional teams could be used to create more ideas. Customers should be their most important information source. And creativity should be supported among employees.

As a third core process marketing and branding is mentioned. This is important to reach customers and donators and distinguish the organization from others. This can be done by thinking about the four p’s, namely product, price, promotion and place. For government organization this is also important, because it can create more support from citizens.

Quality offering of product or service is the fourth core process. This determines how high an organization is setting its quality level and how to improve this.

The next core process is work efficiency. For every organization in every sector this is important. For profit maximization companies this will create less costs per product and more profit. For a nonprofit and government organization it also create less costs and the extra money become available to expand budget constraints. It can also happen to increase outcome with the same input of effort and/or materials.

Partnering for success is also important. The organization has to think about partners to reach specific goals. Organizations could work together to overcome difficulties to achieve something good. These partners could come from profit maximization companies, other nonprofit companies and government organizations.

Fundraising is the seventh core process which is mentioned by Niven to think about. To fundraise effectively and efficiently, there should also be created processes to reach this.

The eight process is monitoring reputation. According to Niven (2011, p. 178), reputation is a vital intangible asset which the organization should be aware of it. For nonprofit organizations this reputation risk could be devastating for support. For government organizations this reputation risk is important to create trust among the citizens.

As a ninth core process which should be examined to create measurements is risk management. Not only profit maximization companies are sensitive for possible risks, also

16 nonprofit and government organizations are. Especially for a government organizations as the police, risk management is important to think about possible uncertainties that could arise, like for example terrorist attacks or political distortions.

The last core process is other sources of internal process objectives. This is important to see what is missing and what should be included as a measure.

To constantly creating more customer value with the internal processes it is necessary to innovate and learn to reach better results. The next perspective will support this goal.

4.3. What could we learn from the organization?

The innovation and learning perspective, also called learning and growth perspective, can be used in similar ways in nonprofit companies and government organizations.

It is also possible that organizations place the innovation and learning perspective as the highest priority perspective. In the study of Bianchi and Montemaggiore (2008, p. 183, 184) the water company, which is used in their case study, place this perspective at the top of their Balanced Scorecard strategy. This shows that it is possible to deviate from the standard model of the Balanced Scorecard, given by Kaplan and Norton.

This company translated their Balanced Scorecard into a causal loop diagram which gave them knowledge about causalities. Feedback loops within and between the four perspective are also included (Bianchi and Montemaggiore, 2008, p. 185, 186). This is also important to see the effect of the Balanced Scorecard within intelligence agencies. Further reading in other articles indicate that causal loops are used to give management more insights into causalities between key measurements (Akkermans and Van Oorschot, 2005, p. 935, 936).

In his conclusion Aidemark (2001, p. 38, 39) stated that these measures positively affects reinstallation of clan control. In this organization the perspectives helped to restructure the bureaucratic top-down control. So this can also be applicable for the intelligence agencies to create a well culture.

Niven (2011, p. 36, 38) also says that defining cause-and-effect relationships is important to make clear how to reach the success of a strategy. According to him a Balanced Scorecard could not supply all the answers, but by defining cause-and-effect relationships, an organization could create more questions from other insights, which lead to more solutions.

Further Niven (2011, p.35) states that the other perspectives rely on this perspective. The ability of employees and the available tools they use determine largely the success of the

17 strategy mission. Unfortunately, the objectives and measures of this perspective are often viewed as the least important. These measures are the most important, because they are the key factors in process improvements, working with financial limitations, and improve value for customers. Niven mentions three sorts of capital in this perspective, which could include the most important intangible assets an organization should think of. These are the human capital, information capital and organizational capital.

In human capital, the most important factors are the skills of employees. This could be supported by suggested ideas for forming the strategy, given by Niven (2011, pp. 180 – 183). These are closing skills gaps in strategic positions, training, recruiting, and retaining the right people. In closing skills gaps in strategic positions, the main thought is that there are several important positions which contribute more to the strategy than others. To recognize these positions, management should critically review their objectives in the internal process perspective to see if someone lacks skills and how this hurt the overall strategy. The second suggested idea where management should think of when its forming a strategy is training for success. This contains measurements to improve a particular training. Monitoring the training of employees gives understanding of their skills. Before this monitoring, management should have a good understanding what they expecting. Niven shows as a third point the importance of recruiting the right people. This should be carefully done, because recruiting of the wrong people take risk and could create a lot of costs. For nonprofit and government organizations recruiting the right people is hard, because for example there is a sort of lack of financial incentives, and other advantages that profit maximization companies can give their employees. Niven points out that is it important to use creativity to attract the right people. The last suggested idea to increase human capital is retaining the right people and success planning. This could be hard for nonprofit and government organizations. Especially in government organizations the incentive for employees to stay compared with profit maximization companies is relatively low. In nonprofit organizations employees could stay longer, because they worked for a goal they are believing in. Also here, with creative objectives and measurements, the organizations should try to retain their people.

In information capital, the most important context is the flow of information. Niven (2011, pp. 183, 184) stated that when the problem of attract and retaining the right people become too big, organizations could move on to information technology to fill this gap. A problem arising with the use of IT is that management recognizes IT as a supporting factor to the organization instead of a supporting factor of customers value. So measures should include IT investments to better explain achieved customer results. It is also important to give

18 employees access to information about key customers, donors, and other stakeholders to make the right decisions in their work.

In organizational capital, the most important context is organizational culture. According to Niven (2011, pp. 184 – 188) the key elements are culture, recognition and rewards, alignment. Culture can be described as the belief and expectations shared by all employees. It is about the way work is conducted. An organizational culture can be an important factor for strategy’s success. Management therefore should try to bring all the employees in the same direction with their thinking and beliefs. Recognition and rewards is also an important feature of organizational culture. Although rewards are not usual or high in nonprofit organizations, recognition should be used constantly. For employees this will result in much more feeling with the organization. Alignment is the third key element given by Niven. Actions of employees should be aligned with the strategy of the organization. They should understand the values of the organization. Involving them in creating a Balanced Scorecard will help them to align with the organization.

According to Niven, the assets which are been measured in this perspective could be the most important, but when it comes to the measurement of it, these assets could be the least understood and the least accessible.

So it seems that the innovation and learning perspective is the most critical perspective, because it determines the success of the other perspectives. With the building of a Balanced Scorecard for intelligence agencies, it should be important to include the human capital, information capital, and organizational capital. Also the relationship of this perspective with the other perspectives should be included. Especially the relationship with the financial perspective, because it has to show the money is spend effectively.

4.4. What are the financial measures?

In nonprofit and government organizations it is thinkable that the financial measures are not the most important. Still often financial measures determines the resources available for this organizations.

The most important relationship of a nonprofit organizations is those between the organization and the society. Financial success is not the most important objective to measure, but the financial perspective can provide important information about strategic decisions (Speckbacher, 2003, p. 278). Cost measurements could give donors important information about the resources that can be used at different trade-offs. This reveals how an organization

19 is able to fulfill the wishes of all stakeholders. The financial perspective should be used as a communication tool.

Niven (2011, p. 34) sees the financial perspective as measures which enable customers success or set constraint within the organization has to work. The outcomes of a nonprofit or government organizations has a value which couldn’t be priced. Nonetheless, when the performance of services will be done at least cost and efficiency is at its highest, then the organization will attract more positive attention and guarantee more investments from donators.

To set objectives for the financial perspective, Niven (2011, pp. 188, 189) claims that nonprofit and government organizations should demonstrate how effective they are with their financial resources. An organizations could do this if they create a balance between efficiency and cost recognitions. Do set objective, Niven mention a few key elements which are important. These are: cost of product or service delivery, revenue enhancement, and the organizational financial systems.

The cost of product or service delivery contains thinking about the operating efficiency and available resources. Here cost and productivity objectives are important, because most nonprofit and especially government organizations are reliable of budgets. The organizations should think about how effectively deliver their mission in accordance with their resources, such as their money and supplies. The revenue enhancement mentioned by Niven contains thoughts about how to create more revenue. This could be done by charging a fee for products or services if this is possible or create a way to get more funds from donators. The organizational financial systems contains all possible information about financial measures. The information should always be reliable, relevant, and timely accurate. This will enhance the substantiation of management’s decisions. If financial errors occur, it can cost the organization a lot of money. If financial systems are well ordered, they can improve the credibility.

Now we have seen which elements are included in the model of Niven, we could see how these elements be affected by difficulties that arise in intelligence agencies. This could define limitations of the Balanced Scorecard if these problems cannot be solved.

5. The Balanced Scorecard in intelligence agencies

In this section the Balanced Scorecard is applied in intelligence agencies. This will determine if the Balanced Scorecard fits into an agency and how it should change to serve the agency

20 with the right information. In section 5.1 some difficulties within an intelligence agency will be examined which could problematize implementing the Balanced Scorecard. Section 5.2 contains the steps of Niven to set objectives within the Balanced Scorecard and section 5.3 shows the causalities between several elements of an agency and the Balanced Scorecard.

5.1. Difficulties in intelligence agencies

In an intelligence agency there are some difficulties which can make it harder to create a Balanced Scorecard. So it is important to think about these difficulties and try to translate them into management control components. That way it will be easier to implement them into the Balanced Scorecard. The five difficulties that will be spoken are false information, costs allocated to secret activities, governmental budgeting, compartmentalization, and expose information position dilemma.

5.1.1. False information in counter intelligence

The Balanced Scorecard is relying on proper information to measure results in order to achieve the objectives. When this information is false, results are wrongly measured and there would be an incomplete or a wrong image of the agency’s results. This will affect customers quality.

False information could be created by counter intelligence measures. The value of an agency’s knowledge could be misleading if this knowledge comes from counter intelligence resources provided from an opponent with bad intentions. Counterintelligence comes often with deception. According to De Valk (2005, p. 75) this could be done in two ways. The first one is to feed an agency with disinformation by using double agents and false defectors. The second way is to uses moles in the agency. The mole could supply the opponent with information and could manipulate information of the agency. This will cause problems for the measures of the different perspectives.

In his research, De Valk explains two different hypothesis relating to counter intelligence which could make this more clear. His first hypothesis states that deception negatively influences the quality of an intelligence report. De Valk explains an opponent has given the agency false information so the report is based on false information. This quality could not rise if someone is accused of being a defector. Through to the covert nature of this work, it is hard not to create a tunnel vision. So if someone is wrongly accused, this is hard to

21 correct. De Valk mentioned that the hunt for falsification is distorted by the secret environment.

The second hypothesis De Valk (2005, pp. 75, 76) mentions is that the quality of an intelligence report could be better if an opponent’s policy of deception is discovered, than if the opponent does not employ deception. De Valk explains that to discover manipulation it is needed to have a good organizational activity that improve the quality of an analysis. When deception is detected, other processes within the agency must be put in motion. More streams of free information must be created and new or other resources implemented. So the agency has to adapt itself which can lead to higher quality than when an opponent does not have a deception policy.

The danger of answering a deception policy is that the opponent could also know of this detection. They could play the game all around and use their deception and truth to manipulate the agency. This is the same problem as mentioned in the Sigint example. So this second hypothesis could be positive or negative.

So counterintelligence leads to false information and more uncertainty. For the Balanced Scorecard this will lead to several problems in different perspectives mentioned by Niven (2011, 178, 179, 181 – 183, 188, & 189).

In the internal perspective this will lead to a weaker risk management, because decision makers use false information to assess risk. The risk could increase when one of the parties uses a deception policy, which make risk management more uncertain.

In the innovation and learning perspective, the value of organizational capital will be reduced, because the existence of alignment with the agency is more uncertain when the chance of infiltrated agents is high. These agents are loyal to another agency.

In the financial perspective the measure of cost of product or service delivery could be false. This happens when intelligence is false and will lead to higher costs. This happens with the Soviet Union which obtained blueprints of an advanced spy plane in the Cold War. After the soviet union finished the building of the spy plane, it wasn’t flying due to an technical error. Later it was revealed that these were the original blueprints which already had been improved by the United States. The Americans let the Soviet Union intercept these first blueprints intentionally to feed them with wrong intelligence. This created extra costs for the Soviet Union.

Additional to the problems described by Niven, another problem arising by false information of counter intelligence is the creation of information asymmetry. Although this

22 problem mostly arise due to the secret aspects of the intelligence environment, this creation of information asymmetry is the purpose of counterintelligence.

These problems make it hard to measure reliable results, but there are some solutions for this difficulties. To deal with a higher uncertainty while manage for risk in the internal perspective Barret gives a possible solution. Barret (2001, pp. 52 – 67) described the counter intelligence process. He says an agency has to know the counter intelligence process and understand which information is useful and which conclusions could be drawn from it. Some phases from the counter intelligence process makes risk management less uncertain. The tasking phase implies that security of an intelligence agency should also be part of the counterintelligence process. Not only physical assets should be protected, but also the intellectual capital. Another phase which could help is the defining requirements phase. This asks to define what really have to be protected. This could be range from assets to internal processes, but the agency must see them as the key components which could help to outperform opponents. The estimating vulnerabilities phase can also reduce uncertainty of risk. In this phase decision makers should estimate weaknesses which provide opponents to give false information or steal information. Management should also think about who wants to provide the agency with false information. This should reduce risk management uncertainty.

The alignment problems in the innovation and growth perspective can be solved by solutions given by Niven. In the human capital, the training for success and recruitment of the right people could be adapted to exclude potential agents of other agencies. The agencies are already recruiting with this in thought, but it can be implemented as a measurement in the Balanced Scorecard. After that, a good organizational culture could help to avoid traitors from within This way the chance of a good alignment with the organizations could become better and it can be measured by the Balanced Scorecard.

To prevent measuring unnecessary costs of products or service delivery, it is needed to underpin why this costs are made and if it contribute to obtaining the goal. Therefore a better understanding should be created via a cause and effect process in the innovation and learning perspective. This lead to more insights followed by more questions, and more solutions and answers. In the previous example, this could reveal the error in advance before the Soviet Union began building the plane and would spare much money.

The problem of information asymmetry as the purpose of counter intelligence is hard to implement into the Balanced Scorecard, but with the counter intelligence process given by

23 Barret, it should give some additional information. This analysis could minimize the information gap between both parties.

So false information in counter intelligence could give some difficulties in using the Balanced Scorecard, but it seems that these can all be solved by implementing measures which take into account the possibility of false information. Another problem which is partially created by the threat of counter intelligence, is the allocation of costs to secret activities.

5.1.2. Allocation of costs to secret activities.

The Balanced Scorecard measure mostly results of an organization. Although the financial perspective is not the most important, it will determine which amount of money is available for every activity. Sometimes these activities are secret and also the costs. So to measure these secret costs, there should be a solution to implement them into the Balanced Scorecard without revealing the belonging activity.

Due to the secret nature of the intelligence world, it is not easy to allocate costs to activities or departments without revealing some information. A good example is the salaries of secret agents in foreign countries or hostile groups. When allocate it to the activity or department, the infiltrated agent could be exposed.

In an annual report of the Dutch intelligence agency (AIVD) in the fiscal year of 2012 (AIVD, 2012), most expenses were open mentioned. The 200 million budget was expensed at 120 million on salaries, 22 million on the building, ICT development was 35 million, 12 million on operational activities, and 10 million on secret activities. So from this it could be stated that the AIVD could implement a lot of costs into these segments. The example of the salaries of secret agents could also be mentioned, because it will not define exactly which employee earns a specific amount of money. So these costs could be included in measurements and objectives within the Balanced Scorecard. The operational activities are stated more specifically, but for example the activities related to Osint could be measured, because it will not say exactly what is being researched or found. The secret costs could be set ups of foreign activities. Some of these costs could not be allocated to the activity when the mission is over, because this could reveal the success and tactics of an intelligence agency. So these costs remain secret.

Difficulties arising while implementing the Balanced Scorecard may relate to the financial perspective, innovation and learning perspective, and internal perspective. The steps mentioned by Niven (189, 184, & 176) which are influenced are the financial systems,

24 revenue enhancement, cost of product or service delivery, and flow of information. Another problem which again arise is information asymmetry.

The financial systems consists of information which is reliable, relevant, and timely accurate. When some costs remain secret, a financial system is not reliable anymore, because some data is missing. Also it is partly relevant, because these systems will not explain every activity. The timely accurate can also be questioned, because some secret costs could be revealed after many years when the activity is already ended.

The revenue enhancement is translated into value creation and can be hard when not all costs are implemented into the calculations. This also counts for the costs of product or service delivery. Some intelligence reports could be more expensive than is shown by omitting these costs.

The flow of information will be reduced by these secret costs. Leary (1984, p. 58) mentioned that CIA political projects with a high sensitive classification were often included in the records without full information. Only a few know all the costs which is a consequence of the need-to-know rule.

A solution to the financial system difficulty can be a robust distinction between the secret and other costs. The example of the AIVD gives explanation about the distribution of the budget, but it don’t reveal any information about the secret activities. This makes it possible to measure the general results of the AIVD and improvements of internal processes. Because of the need-to-know principle, only people required can measure the secret costs, but this shouldn’t cause a problem. The Balanced Scorecard could also be used in this way to improve the organization as a whole. This makes it possible to calculate revenue enhancement. There should be a higher officer who measure also the secret costs and is capable of to improve these secret activities.

The flow of information is subjected to the need-to-know principle, but this can’t be changed due to the secret nature of intelligence agencies. The thought that comes closest to a possible solution is that if the need-to-know principle is well organized, it should match the right people with the right information. So to improve an intelligence agency with the use of the Balanced Scorecard, the officers who have access to secret costs should measure these and report them into a robust way.

These secret costs are also secret for the government which provide the budget of an intelligence agency. This could lead to the following problem.