* Written by request for www.neocog.com
There are a few critical things that organizations implementing a balanced scorecard measurement framework need to know. If you’re starting from scratch, build these considerations into your process, and you’ll avoid many of the mistakes companies that have been using them for years tend to make.
1) Always work backward from the strategy
Choosing metrics should be a process of pulling concepts from existing strategic context. If your organization doesn’t have great depth of strategic clarity as defined through a chosen value discipline, a strategy map, positioning objectives and long-term direction, you need to back up and start there. Measures drive behaviour at all levels of the organization. If you choose measures that are strategy-neutral, they become a distraction. If you choose measures that focus on the wrong objectives, you can drive out behaviours that are counter-productive to the consistent customer experience you’ve been working so hard to create. Smaller organizations often shy away from more complex planning discussions, but they can easily be scaled to fit.
2) View your scorecard as learning tool… it’s a means, not an end
Scorecards are designed to create accountability, clarify what is important, and create decision making information that is actionable. It’s a learning tool. Many organizations fall into the trap of using it primarily to justify past behaviour, because of connections to other business processes like variable compensation and performance management. The danger with an unbridled focus of achieving your targets is that this becomes the goal, rather than continuous improvement and learning. Regardless of how well you’re performing, always analyze the factors that exist within your environment (internal/external, positive/negative) to determine what might be impacting your measures.
3) Don’t marry the scorecard
Year over year comparatives are useful in creating an overall sense of progress. This can result in a deep management commitment to specific metrics. This can be very positive until the organization changes strategy or creates greater strategic clarity. Keep in mind that when this happens, the measures have to change to drive out the correct behaviours. Maintain a management understanding that measures are as useful as their relevance to the current strategy. Over time, better measures emerge and can provide you with better and more actionable decision making data. As you build a culture of continuous improvement, the organization will naturally gain flexibility and these kinds of challenges will fade.
4) Use an objective framework prior to choosing measures
Before choosing measures, define the measurement objectives within each focus area. This is where a strategy map pays off. A strategy map defines the value your organization is working to deliver, and all of the major objectives that contribute to that, including inter-dependencies. If it’s important enough to be on the strategy map, you should measure it. If you pull objectives from your strategy map (word-for-word or conceptually) you already have the context for choosing your measures. Then, you can select, test and experiment with measures to ensure their usefulness (behind each objective). The beauty of setting objectives before choosing measures is that it provides better control for when measures should be changed. Within this structure, measures should only be changed if:
– The strategy map has changed
– One of the measures is driving the wrong behaviours
– One of the measures isn’t speaking to the objective
– The overall mix of measures doesn’t line up with the criteria (mix of leading, lagging etc…)
– A better, newer measure emerges (such as net promoter score over a satisfaction measure)
5) Keep it fresh and blunt
Who uses the measures, and for what decisions? Take the time to double check with your management that the measures are helping them run their business. Complete an annual update of a document that contains the drivers, definitions and calculation methodologies. This ensures the entire organization understands the measures. Finally, make sure every measure is moving, year over year. When you have achieved your desired state in a given measure, move on to something more challenging or more highly correlated to what is important.
The most important dimension of all is to ensure that your measures provide you with the stark truth on all of the critical drivers for your success. The more honest and actionable the measures, the less room there is for risk to unknowingly crop up.