How to make Balanced Scorecards work for your organization
By Susan Cramm
To be at the top of your game in IT, you have to measure results. Most large organizations have implemented some type of Balanced Scorecard initiative, although many are unhappy with the impact of their efforts. Before you jump onto the bandwagon, take a deep breath, pull the research (www.bnet.com has a good list of reference material), and think hard about what you want to achieve.
The Balanced Scorecard is useful because it is grounded in reality. We can’t have it all; trade-offs are inevitable among financial contribution, customer focus, operational excellence and organization maturity—the four dimensions of the Balanced Scorecard. Since the CIO job is by definition the management of contending opposites (for example, improving service while reducing expenses, delivering quickly while building a reusable infrastructure, and creating alignment while delivering value and reducing technology footprint), scorecard techniques make sense for IT.
It’s important to distinguish between the Balanced Scorecard and the role of operational measurements. A ton of measurements are required to ensure that day-to-day operations are under control. Many of these measurements are the domain of the functional managers; the CIO will see them only when something goes awry.
In contrast, the primary goal of Balanced Scorecard metrics is to help drive and monitor the implementation of strategy. This happens because attention gets focused on achieving the critical outcomes, aligning efforts and resources, and communicating results and implications for the future.
If you don’t have a business-aligned IT strategy that helps you allocate scarce resources and create value, then you don’t have the clarity of purpose necessary to use a Balanced Scorecard. A good IT strategy can be communicated to the front line of your organization in a way that directs actions, forces trade-offs and establishes behavioral guidelines. In addition, since strategy and scorecards require business commitment, you must ensure that your strategy and scorecard definition processes are participative.
Whereas operational dashboards are comprehensive and relatively static, Balanced Scorecard metrics are more narrowly focused and shift with changes in strategy. Effective scorecard metrics measure outcomes (versus activities or milestones). In my experience, the number of metrics at the enterprise level should definitely be less than 10, while at the individual level the number can be narrowed to two or three. Whereas enterprise metrics are useful in guiding the leadership cadre’s actions, individual metrics are essential to focusing frontline contributors on their roles.
To create strategically relevant IT metrics, define your strategic goals within each of these five categories: financial performance, project performance, operational performance, talent management and user satisfaction. Then consider how to measure success within each of the four Balanced Scorecard dimensions. For example: If a strategic goal under financial performance calls for supporting an increase in acquisitions, then a financial contribution metric might be keeping IT integration costs within a certain range; the customer focus metric could be integrating acquisitions within a certain time frame; the operational excellence metric might be to leverage the new scale by reducing the per-seat costs; the organization maturity metric could be the development of a common acquisition integration process that is repeatable and reliable.
Once you have completed this process, you will have far too many metrics. Your next challenge will be to identify metrics that are correlated, in that they support more than one of the Balanced Scorecard dimensions and strategic goals. For example, “percentage of calls resolved on first call” supports both the customer focus and operational excellence metrics, while reducing project cycle time is a measurement that will contribute to all four dimensions. Rather than starting from scratch, build a list of potential IT metrics by leveraging your research, professional associations and contacts.
When you are comfortable using the Balanced Scorecard at the enterprise or business unit level, then it’s time to align the IT organization by cascading the metrics down to the front line of employees in order to drive performance improvements. Do so by defining job-specific outcomes, integrating these into the performance management processes, and evolving your metrics and monitoring systems so that data aggregation and drill-down capabilities exist.
The old adage that “You get what you inspect, not what you expect” applies to Balanced Scorecards. It’s a great tool for enterprises and IT groups alike, but only if the principles of strategic relevance, commitment, focus and organizational alignment are respected.
Q: How many different balanced scorecards are there? I’m familiar with Robert Kaplan and David Norton’s work and their Balanced Scorecard Collaborative. Which approach do you recommend?
A: Kaplan and Norton are the rightful parents of the Balanced Scorecard and their framework serves as the foundation for all the derivative works in this area. As researchers and consultants have applied the concept, they have adapted the Balanced Scorecard to fit particular applications and extended it to tie into other concepts, but the fundamental concepts are unchanged.
For example, in its overview on scorecards, the Balanced Scorecard Institute, which is government-focused, goes beyond Kaplan and Norton’s definition of scorecards by tying them to performance measurement systems and quality methods such as TQM.
Q: In my view, the Balanced Scorecard has to be adopted corporatewide rather than in individual organizational units. The Balanced Scorecard provides metrics beyond financial results. If other organizational units are focused solely on financial results, then the unit measuring by the Balanced Scorecard will be out of step, and it may even be at a disadvantage.
A: I agree that for maximum performance impact, Balanced Scorecard initiatives need to be sponsored at the enterprise level and cascaded down through the organization. Enterprise adoption is not, however, a precondition for successful implementation. The Balanced Scorecard is a structured way of implementing common sense. Organizational performance is measured on multiple dimensions—whether or not the organization reports only in the financial dimension.
For example, consider a CIO at a very financially focused and disciplined retail organization. Even though the only numbers she needs to report are financial, she understands that her performance is also dependent on improving service levels, building human capital and delivering value to the business while improving efficiency. The Balanced Scorecard helps her focus and lead her organization. The fact that the powers that be in her company don’t ask for her strategy map and metrics should not deter her from applying common sense in a disciplined manner.