Scorecard management – Q&A

There are as many opinions about corporate measurement as there are consultants. (That’s a lot, probably too many) Every organization seems to approach developing these frameworks differently, ranging from measuring very few things to anything that moves. Here are some practical considerations to look at before you decide on an approach.

Q: How many things should you measure?
A: Beware the consultant that has a pat answer for how many corporate measures you should have. Sure, 6-10 is a great number if that matches the complexity of your business AND the sophistication with which you understand your critical business drivers. Every company is in a different spot on those continuums. Over time, with focus, you should be able to test and refine the strategy map and scorecard based on the causal relationships you theorized being as true as originally thought… or not. But until your understanding matures, you may have to measure a few more things than you’d like.

A simpler answer is this: What drives your business? –> measure those things. When your understanding becomes more dialed in, so can your measures. If you have 5 critical drivers, measure those 5 things. If you have 12, measure 12.

If you measure more things than what is critical, it’s a distraction. If you don’t measure all of the things that drive the business, you have blind spots.

Q: What are good reasons to change scorecard measures?
A: For the most part, there are 3 good reasons to change.

1) The strategy map is wrong -> change the objective then look at the BSC measures (add or subtract) – congrats on learning something you didn’t previously know!
2) A measure is problematic but the strategy map is right -> get a new measure
3) A newer, better measure comes along -> replace an existing BSC measure – run them in parallel while you learn the new one

Why is a strategy map important and how do you build one?

“Strategy” is one of the loosest terms currently used in business today. It’s not simply because it has been defined differently by so many credible people over the centuries, but because there is no commonly held view of how to create or articulate it. There is also no way to determine whether the direction you have come up with is “correct” or will create the desired effect.

Gauging the insight behind a strategy is just as difficult because more strategies fail because of poor implementation than they do because of an inherent directional flaw. This brings us to the strategy map; it’s a tool that increases your likelihood of implementation success simply because it forces greater definition of what is to be accomplished, and how. This positions you to both measure and manage the things that are pivotal to your objectives and eliminate a focus on the things that aren’t.

Do you really need it? Have you defined your direction as well as you think?

Simply put: If you have fully defined your strategy and understand the foundational interrelated objectives well enough to build a strategy map, the whole process takes as long as it does to write it down. But realistically, this isn’t usually the case. People avoid this exercise because it’s challenging. As it has been said, the simplicity that lives on the far side of complexity is where true clarity resides.

Generating a (real) business strategy is a process of conceptualizing how to generate a stronger competitive advantage based on your unique positioning, opportunities, and tangible/intangible assets. The choices that describe what is meaningful within the context of the implementation cannot be guessed. So without explicitly defining the outcomes that describe success, and the objectives that drive achievement, the likelihood that your employees will consistently guess what you haven’t defined and then manage toward that is very unlikely.

More often than not, the strategy mapping process forces people to think through directional statements to a much deeper level than they would have otherwise. This is nothing but useful when it comes time to make decisions, select metrics, assess progress, and prioritize competing projects.

How do you build it?

Before you begin, assume that this will be an iterative process, with an output that will be continually tested and improved over time.

Organizing focus areas: The first decision is how you stack your focus areas. They are usually expressed with the top line as the outcome, assuming an upward flow on the chart. If creating shareholder value is about creating profit, your financial perspective will form your top line. If you exist to create value for the community, profit may serve another focus area, placing a client/member perspective at the top.

Building the top line: An organization’s strategy must describe how it intends to create value and for whom. This is the top line of your strategy map: Why is your organization here, specifically. Look to your vision, don’t rush this step.

Building the rest: Now you populate the other perspectives with a series of objectives with cause and effect linkages. What are the objectives that drive the success of your organization? How do they interrelate? Typically, a human capital/culture/learning & development perspective is the foundational row. This flows up into your internal business processes / efficiency row, and then into customer and financial focus areas (financial and then member for some organizations).

When you’re first starting, it often helps to look for examples of how other similar organizations have constructed their map. However, don’t fall into the trap of being a “copy-cat”. Just as you wouldn’t photocopy someone else’s business plan, you can’t do that with a strategy map and expect it to be meaningful. If your strategy isn’t unique, it’s also not useful. Don’t be generic in your approach. Generic means you don’t really have a strategy.

Now that you have a strategy map, you’re positioned to do the following:
• Communicate your strategy to the workforce more effectively
• Align performance management to a measurement framework you can be confident in (getting people outside of their “role” and showing them how they contribute to the bigger picture)
• Select measures that matter
• Know how many things are critical to manage and measure
• Test the cause/effect relationships between your objectives and metrics to learn whether they respond as you expect them to (do you understand your business as well as you think you do)
• More deeply understand what matters/what doesn’t and begin to more closely prioritize where resources should be applied/redirected
• Dial in this view to create a more differentiated customer value proposition over time
• Align your enterprise risk management processes to the objectives that matter most

Unless you have a better way of accomplishing this, it’s worth your time.