News Feature

Balanced Scorecard Demonstrates IT Value

By Eric Berkman

May 15, 2002 — CIO — Mobil Oil (now Exxon Mobil) leaped from last to first in profitability within its industry from 1993 to 1995?a rank it maintained for the next four years. Cigna Insurance was losing $1 million a day in 1993, but within two years it was in the top quartile of profitability in its industry. Then in 1998 it spun off a $3.5 billion division. What’s the key to these dramatic turnarounds? These companies attribute at least part of the solution to having implemented the Balanced Scorecard.

Developed in the early 1990s, this valuation methodology converts an organization’s value drivers?such as customer service, innovation, operational efficiency and financial performance?to a series of defined metrics. Companies record and analyze these metrics to help determine if they’re achieving strategic goals. A fully implemented Scorecard cascades from the top levels of a company all the way down. Ultimately, each member of the organization works off a personal Scorecard, striving to achieve personal objectives based on measurements directly linked to the corporate strategy.

It is ideal to implement the Balanced Scorecard throughout the enterprise because that framework helps foster alignment between business and IT, says David Norton, cocreator of the Scorecard and president of the Balanced Scorecard Collaborative in Lincoln, Mass. Still, the concept can work within an IT organization specifically. (See "Can IT Keep Score by Itself?" on Page 100.) The key difference when the Scorecard is implemented within IT as opposed to the entire company, says Norton, is that the "customer" is a user within the corporation, not an external consumer.

Because the Balanced Scorecard requires every action to answer to established corporate goals, using the Scorecard within IT can still help promote alignment and eliminate projects that contribute little or no strategic value. "It really changes the conversation between IT and business," says Linda Bankston, CIO of DuPont Engineering Polymers, a $2.5 billion division of DuPont Chemicals in Wilmington, Del. "The conversation is around strategy and impact, rather than just whether you can or can’t do something."

Nevertheless, installing the Balanced Scorecard within IT is a challenge. It changes the job approach of all employees?not to mention how they’re evaluated. CIOs need to take a number of necessary steps to properly lay the groundwork for a successful implementation.

Prepare the organization for change.
Devise the right metrics.
Get buy-in at all levels.
Plan to follow through to completion.

Before jumping in and developing all sorts of metrics, sit down with the rest of the leadership team and define the overall strategy, says Norton. Strategy is typically articulated by four or five value drivers, or broad strategic goals, for the organization. The Hilton Hotel Corp., for example, gears its strategy and Scorecard framework around financial performance, customer service, efficient business processes, innovation, learning and growth. (See "Why Full Rollout Isn’t Necessary," on Page 96.) It’s also critical to designate a Scorecard champion, says Norton. When implementing the Scorecard within an IT department, that champion should be someone other than the CIO. "The CIO is responsible for using and driving the Scorecard," says Norton. "But you need an individual from within IT?maybe whomever’s responsible for planning within IT, or someone responsible for preparing your finance or budgeting system?to be assigned responsibility [for the Scorecard]."