by Eric Berkman

Balanced Scorecard Demonstrates IT Value

May 15, 200210 mins
IT Leadership

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 Balanced Scorecard cascades from the top levels of a company all the way down. Ultimately, each member of the organization works off a personal Balanced 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].”

To succeed in the role, the Scorecard champion must be capable of strategic thinking, understand the strategic view of the company and have the ear of the CIO, says Al Grasso, former senior vice president and CIO of The Mitre Corp., a nonprofit systems development group based in Bedford, Mass. “When he has the ear of the decision maker in the organization, he can effect change,” says Grasso, who implemented the Scorecard at Mitre’s New Jersey operations facility.

Bill Schiemann, CEO of Metrus Group, a Somerville, N.J., consultancy that works with the Balanced Scorecard, emphasizes that implementation has to start at the top with the CIO (if done within IT) or CEO (if done companywide) and the most senior levels of that person’s group. “We find it critical to [agree] upon a set of drivers and results of their business strategy that can be measured,” he says. “What we’ve seen not work at all is delegating the whole thing to a committee to go off and work out measures and come back for a blessing.”

Set the Right Metrics

Once the groundwork is set, the next step is to identify both the right metrics and the right amount of metrics with which to track the company’s progress toward its organizational goals. At FirstEnergy’s $5 billion utilities division in Morristown, N.J. (formerly GPU Energy), one strategic goal is to create “raving fans” among its customers. Its other value drivers are reliability, finance and creation of a winning culture. For FirstEnergy’s IT group, raving fans mean internal customers, so CIO Rick Fidler and Senior Process Analyst Mel Brinkman, who is in charge of FirstEnergy’s IT Scorecard, have devised three metrics to determine whether they’re meeting customer demand.

  • Percentage of projects completed on time and on budget.
  • Percentage of projects released to the customer by the agreed-upon delivery date.
  • Client satisfaction as indicated by customer surveys completed at the end of a project.

FirstEnergy evaluates project managers based on how well they achieve their target percentages. Brinkman says that has improved the customer experience. “[The Balanced Scorecard] puts our project managers under a microscope and forces them to look more closely at themselves and their methodology,” he says.

At Dupont Engineering Polymers, a major value driver is fostering new business models. For Bankston’s IT group, that means streamlining e-commerce. Because avoiding manual transactions is a primary goal of e-commerce, Bankston established a metric for her global program manager and e-commerce technology manager to reduce the number of transactions that require human interface. “This metric gets to the real strategic purpose of having the Internet,” she says. “Having someone place an order online only to get a human involved is really not the goal.”

Metrics should also relate to softer, less technical strategic goals such as workforce development and retention. At Mitre, Grasso’s managers are graded on their ability to keep low attrition rates. Other companies grade managers on how many of their workers have comprehensive development plans?and how those are progressing.

It’s important to measure the right factors, but Bankston warns against getting metric-happy. Pursuing too many metrics dilutes the strategic purpose, reducing it to an exercise in information-gathering. “You’ll spend too much time reporting measures rather than making a change,” she says.

Even with the right number of metrics, you shouldn’t phase them in all at once, cautions John Nordin, vice president and CIO of Franklin Park, Ill.-based metal distributor A.M. Castle. When Castle implemented the Balanced Scorecard two years ago, his company identified 13 metrics and focused on all of them simultaneously at the onset. “That’s 13 events of discussion, measurement and debate,” he says. If he could do it over, he says, he’d take two or three at a time, debate them and see if they work. “It’s the idea of creating small deliverables along the way,” he says. “You get quick wins for the organization. Otherwise enthusiasm wanes as the world changes too fast.”

Metrus Group’s Schiemann also warns against selecting the easiest measures to implement. “If you just pick the things you’ve always measured before and expect different results in the future, you’ll be sadly disappointed,” he says. “All too often, there’s the tendency to grab the easiest, most readily available measures, missing the more important ones that may be crucial to delivering high value to your customers.”

Get Buy-In at All Levels

Implementing an established valuation program like the Balanced Scorecard is a significant change in the way employees view their job. The natural paranoia that comes with change is bound to surface, so it’s important to ensure that everyone is into it at every level of the company, from the senior executives all the way to the entry-level employees.

To make that happen at Castle, Nordin relied on systematic, organizationwide communication of the Scorecard concept. Initially, Nordin and five other top-level execs trained on the Scorecard and agreed it was worth a look. Then, instead of emerging from the mountain holding a pair of tablets and an edict for the organization, they grabbed the next 12 managers down the chain, trained them on the Scorecard and solicited their feedback.

They continued this process until 80 people were involved. Only at that point did they commit to the Scorecard, sending those 80 managers back to their business unit to talk it up with their employees. “We told them to go back and tell their employees what they’d been working on for three days, and to say, ’I’m not sure I’m convinced?what do you think?’” says Nordin. This tactic involved everyone in the entire organization?a critical factor in the Scorecard’s success.

Once the staff was ready to go, A.M. Castle hired a training company that developed visual “learning maps” for employees to better understand the Scorecard concept. The company also developed a board game on the Balanced Scorecard that was similar to Monopoly and sent managers to play the game with their business unit. “We laminated them, stuck ’em on a wall and gave out game cards,” says Nordin. “It was a huge success.”

Balanced Scorecard Collaborative’s Norton says that approach is the most effective way to implement the Balanced Scorecard, adding that the Monopoly game is a cool idea. “What this tells me is they understood that to make this work, they had to push it all the way down to the bottom of the organization and to make strategy everyone’s job,” he says.

Susan Dallas, research director at Gartner in Stamford, Conn., says the best way to tell if the Balanced Scorecard is working for your company is if you set higher measurement goals every year and continue to meet them. Obviously, it takes time to make this type of assessment. In the short term, however, you should be able to see anecdotal evidence that the approach is working, such as whether or not the organization is meeting budgetary and project goals.

Bob Sheridan, head of market support systems at Hartford, Conn.-based health insurer Aetna, says you know it’s working if after you ask people what they do, they define their job in the perspective of where it fits in with the strategic business goals of the organization, rather than simply saying, “I write code.”

Finally, says DuPont’s Bankston, you should see vastly improved alignment between business and IT. “We’re now seeing real joint decision making around what we do or don’t do because of how it fits in around the work of the Scorecard.”