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Today we provide an overview of the Balanced Scorecard along with some themes to consider when doing a project in a culture that utilizes a balanced scorecard and values management with metrics.

Management with Metrics: Understanding the Balanced Scorecard

Management with Metrics can be overwhelming to an organization if it is implemented with no regard to that organization’s change management history, culture and readiness. That being said, the starting point for Management with Metrics (as well as any organized approach to making change happen to enhance the customer experience and impact the profit of an organization) is actually having a customer strategy.  Every design session that we have been a part of that introduces Management with Metrics principals begins with a clear understanding of how Management with Metrics fits in the business model objectives and customer strategy of that given company. Balanced scorecard planning is one of the key ways that leaders of an organization can define and document their customer strategy regardless if they choose to utilize the Management with Metrics methodology to execute the strategy.

A new approach to strategic management was developed in the early 1990’s by Drs. Robert Kaplan (Harvard Business School) and David Norton. They named this system the ‘balanced scorecard’.  Recognizing some of the weaknesses and vagueness of previous management approaches, the balanced scorecard approach provides a clear prescription as to what companies should measure in order to ‘balance’ the financial perspective.

The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise.

Kaplan and Norton describe the innovation of the balanced scorecard as follows:

“The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.”

The balanced scorecard methodology builds on some key concepts of previous management ideas such as Total Quality Management (TQM), including customer-defined quality, continuous improvement, employee empowerment, and — primarily — measurement-based management and feedback.

Loosely translated, a balanced scorecard can be seen as a “compass” for running a business. It signifies the setting of direction and alignment of resources to long range goals, and is the output of a strategic planning process.  At the same time, it utilizes “key performance indicators” to run day-to-day operations.  Together, key metrics and a customer strategy combine in a balanced scorecard that helps us set direction and manage for results. As an example, the balanced scorecard plan for a bank will be built in a synergistic and dynamic fashion along with the customer/marketing strategy and business/profitability strategy with each deliverable being tied together along the way.

Balanced scorecard planning is a process used to formulate and execute breakthrough strategy to achieve long-term customer, associate and shareholder goals.  The balanced scorecard suggests that an organization be viewed from three perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives: the balanced scorecard plan documents an organization’s strategy; 12-month performance plan and specific metrics throughout the organization’s processes that align the performance plan to the strategy.

This format provides a simple, comprehensive and focused three-page document:

  • Page 1: the organization’s breakthrough 3-5 year goals and strategies for customer, associate and shareholder satisfaction
  • Page 2: the concrete performance plan for the next 12 months
  • Page 3: the “balanced scorecard” which describes the specific measures and performance commitments that track progress to the 3-5 year goals

You can’t improve what you can’t measure. So metrics must be developed based on the priorities of the strategic plan, which provides the key business drivers and criteria for metrics that managers most desire to watch. Processes are then designed to collect information relevant to these metrics and reduce it to numerical form for storage, display, and analysis. Decision makers examine the outcomes of various measured processes and strategies and track the results to guide the company and provide feedback.

So the value of metrics is in their ability to provide a factual basis for defining:

  • Strategic feedback to show the present status of the organization from many perspectives for decision makers
  • Diagnostic feedback into various processes to guide improvements on a continuous basis
  • Trends in performance over time as the metrics are tracked
  • Feedback around the measurement methods themselves, and which metrics should be tracked
  • Quantitative inputs to forecasting methods and models for decision support systems

Finally, managing with metrics is also key for the project manager in how a project is selected and how its success is determined during the execution of the project and a given project has been implemented into the day to day operations of the process. Here are some themes to consider when doing a project in a culture that utilizes a balanced scorecard and values management with metrics:

  • Key projects should tie to your balanced scorecard plan
  • Business case must demonstrate how the potential project results will drive one of more of the Level 1 key metrics. (use financial analysis to help with this)
  • Do not use “cost avoidance” as a legitimate reason to undertake a project Projects should clearly demonstrate net income savings, productivity improvement, or customer delight
  • Using metrics methodology above, develop a measurement plan to be included in the project business case
  • Hold executive level project reviews at least monthly to go over progress toward targets
  • Focus review presentation on the measurable progress and make sure they are financially “blessed” before hand
  • Audit performances to metrics for three quarters after project close to ensure repeatability and control
  • Declare a win and move on

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