Scorecard Whitepaper - Excellence in Financial Management

12 Pages·2006·0.04 MB·English

Scorecard Whitepaper
Mark Graham Brown
WhyScorecard?
Organizations havealways had ascorecardofone sort oranotherlongbeforetheconcept
ofbalancedscorecardcamealong. Measuringthe performanceofabusiness or
government organization is hardlynew.Therehavebeen accountants incompanies for
hundreds of years. What is new,is tobalanceout theperformancemeasures bylookingat
stakeholders otherthanowners, lookingat morethanjust measures havingtodowith
money, andbalancingout thepast-focusedmeasures withsomethat lookat thepresent
andfutureperformanceoftheorganization.
Thereason so manyorganizations havebecomeinterestedinthebalancedscorecard
approachtomeasurement is that theyhave foundthat theirtraditional laggingindicators
offinancial performance donot provideanadequateviewoftheoverall healthofthe
enterprise. Companies haveshut theirdoors with goodsales andprofits until theday
theywent out ofbusiness. Laborproblems, customerdissatisfaction,apoorimage,
failingtomeet regulatoryrequirements, lackofnewproducts, andavarietyofother
factors havecausedthedemiseofbusinesses. Theseproblems areeasytoseewhenthere
arecatastrophes suchas Sears loosingseveral billiondollars,orEnron,Adelphia,
Worldcom,andothers findingthat theirexecutives arebeingcartedofftojail orthat the
companyhas tofilebankruptcy. Bythetimeproblems get this bad, youdon’t needa
report orscorecardtoknow you areintrouble. Thekeyis tohavemeasures that predict
problems likethis before it is toolatetodeal withthem. Most scorecards in companies
include“heart attack”measures likethis, but lack cholesterol measures that couldhave
predictedproblems years beforetheheart attacks occurred.
What balancedscorecard is all about is puttingtogetherawell thought-out set ofgauges
that provideapictureoftheorganization’s health yesterday,today, andtomorrow,and
from thepoint ofviewof all ofits important stakeholders. Balancedscorecardis not
about tryingtomeasureeverything. Infact,most scorecardprojects I’vebeeninvolved
withentail eliminatingabout 60%ormoreofthe measures that donot provide
meaningful data. Balancedscorecardmeans everymanager fromfirst line supervisorup
totheCEOhas 12-20 gauges toprovidethem withdataonhowtheirpart ofthe
organizationis performing.
Evenanorganizationas small as mine(oneperson)needs ascorecard. Idon’t do
employeeorcustomersurveys, but Idotrackseveral measures offinancial performance
andseveral leadingindicators suchas booksales, business cards receivedat speaking
engagements, and afew otherthings. All non-profit andgovernment organizations need
scorecards as well toshowthem howtheyareperformingfor groups liketaxpayers that
paytheirsalaries.
How does scorecard tie in with strategy,budgeting,operational planningand other
systems?
Thescorecardis not aseparateproject orset ofnumbers, it is theset ofnumbers usedto
runthebusiness. About 75%ofthemeasures or gauges shouldrelatetothe missionof
theorganizationorwhat it does foraliving. Thereshouldbe goals for financial
performance, customersatisfaction,employeesatisfaction,andmeetingoperational
requirements forthings likequalityandproductivity. The remaining25%ofthegauges
onthedashboardshould provideinformationonhowtheorganizationis progressing
towardits vision. Thevisionis afuture-focusedstatement that identifies wherethe
organizationwants tobein3-5 years. Thesestrategic gauges linktothemost important
things theorganizationneeds tofocus ontoachievethevision. Forexample,when
Ericssonwas tryingto go from number8inmarket shareinthecell phone business to
number3,oneoftheirstrategic gauges was brand recognition.
Iseesomebigcorporations that trytolinkall oftheirmeasures tothevisionofthe
companyandthis is ahugemistake. Most ofthe measures will havenothingtodowith
thevision,but shouldlinktothemissionorthebasicbusiness theorganizationis in. Part
ofwhythis happens is that thevisionstatement is oftenare-statement ofthemission,
whichdescribes what the companydoes foraliving. Bothamissionandvisionare
important forall organizations, but theyshouldbeclearlydifferent. While you areout
chasing yourvisionofmarket share, growth, recognition,orwhateverthe visionis, you
still needtomindthestoreandtake careofbasicthings likesales, margins,customer
service, employeemorale,andotherthings. Hence,75%ofthe gauges on thescorecard
shouldtell you about howthosebasicfactors are performing. The remaining25%should
bemorestrategicinfocus andlinktothevision. If youignorethecoremission-related
gauges youwon’t be aroundnext yeartothinkabout things likevision.
What Iam sayingis that thescorecardis thefoundationofthecompany’s corebusiness
strategy. It needs tolink toplanning,performance appraisal,compensation,budgeting,
andothermajorsystems. Morethanhalfofthebusiness andgovernment organizations I
consult withdonot haveaclearmission,visionorset ofvalues tostart with,andhence
theirscorecardis built onashakyfoundation. The basics ofyourcorestrategyneedtobe
figuredout beforethescorecardcanbebuilt. Once youarecertainthat themetrics are
valid,then you canthink about linkingotherthings tothescorecardsuch as
compensation,budgeting,andimprovement initiatives.
How does ascorecard comparewith ‘keyperformanceindicators’,or other
measurementsystems and processes?
Thereis nodifferencebetweenscorecardmeasures, keyperformanceindicators, process
measures, etc. All ofthesethings aremeasures of howall orpart oftheorganizationis
performing. Eachpart of anorganizationcannot beassessedbylookingat asingle
numberormeasure,so a numberofmeasures needtobeidentifiedthat address different
aspects ofperformance,suchas financial results, quality,and customersatisfaction. The
scorecardforaperson runninga companyorbusiness unit wouldincludedifferent
measures thanthescorecardfor aperson runningamachineintheplant. However,both
individuals needascorecardtotell them howtheyaredoing.
Thebigadvantageofimplementingabalancedscorecardfrom thetopdowninan
organizationis that it forces alignment. If youstart withthebigboss,andthendo
scorecards fortheboss’s direct reports, thosescorecards needtocollectivelymakethe
boss’s gauges hit thetargets. As you cascadedowntheorganization youseelowerlevel
measures ofproducts and processes that needtocontributetothehigherlevel gauges.
Hence, all performance measures must somehow linktoanimportantoutcomeforthe
organization. Outcomes arenot just profits either. Anoutcomemight behappier
customers whobringin morebusiness orreferothers, orahappiersafer placetowork for
employees. All the‘underthehood’measures needtosomehowlinktothesuccess of
theorganizationorthemeasuredoes not belongonanyone’s dashboard.
Iseealot ofsuperstitious process measures inserviceorganizations. Manufacturing
organizations tendtohavegoodprocess measures becausetheyarebasedonresearchto
identifythe critical process variables andstandards that linktoproduct quality
dimensions. Serviceorganizations oftenhavestupidorsuperstitious process measures
that donot linktoimportant outcomes. For example,airlines measurewhetherornot
theycanshut thedoorof theplaneonorbeforethescheduleddeparturetime. What this
sometimes means is shuttingthedoor earlyandturningawaycustomers whodidnot
arrive at the gate10minutes beforethedeparture time,shuttingthedoor,pullingaway
thejet way,andsittingontherunwaywaitingfor 45minutes totakeoff. Shuttingthe
dooris considered ‘take-off’accordingtothe FAA. Salespeopleareoften measuredon
ridiculous behaviormeasures suchas howoftentheycall oncustomers, whetherornot
theyprepareclearly-writtencall reports, showupforsales meetings, gototraining, and
anynumberofotherprocess measures. Yet,themost successful salespeopleoften get the
worst scores ontheseprocess measures. Trainingmanagers judgetheirsuccess by
countingbutts intheclassroom. Thereis noendtothesuperstitous behavior-based
measures Ihaveseenin government andservice organizations.
Thetest ofa goodprocess orbehaviormeasureis that thereis proofindicatingthat it
predicts ameaningful outcomeandthat it drives theright behaviorfrom employees.
Rarelydo Iseesuchresearchbackingupprocess measures. Rather,thereis alot offaith,
hopeandother factors in placedrivingthesemetrics. Thesesuperstitious process
measures areverydangerous becausetheygivethe management a falsesenseofsecurity
that everythingis finewhen,infact,it probablyisn’t.
How doqualityinitiatives likeActivityBased Management(ABM),SixSigma,and
Baldrigetieintothescorecard process?
Thereis ahugedifferencebetweentheBaldrigemodel andapproaches like ABM/ABC
and LeanmanufacturingorSixSigma. TheBaldrigemodel is themost widelyaccepted
systems model forlookingat anykindoforganizationfrom business togovernment,to
school. Just about everymajorcountryintheworldhas adoptedit.TheBaldrigemodel
is notaboutqualityorTQMand hasnotbeen since1995.Section7oftheBaldrige
model (where45%ofthe points are)asks forfour categories ofresults: customer,
financial,humanresources, andoperational. Thesecorrespond tothefourtypes of
performancedatainmost balancedscorecards. TheBaldrigemodel also asks about
scorecardmeasures inthe Leadership(1.1)section,StrategicPlanning(2.0),and
InformationandAnalysis (4.1)sections. Human resource andprocess measures are
askedabout insections 5.0and6.0ofthe Baldrige model. Hence,havinga good
balancedset ofmeasures is ahuge part ofimplementinganapproachlike Baldrigeinan
organization. Thereis muchmoreinthe Baldrige model thansimplyhavinga good
scorecard,but it is certainlypart ofthefoundation ofanyBaldrige-winningorganization.
So,balancedscorecardandBaldrige arenot two competingmodels. Baldrigelooks at all
majorcomponents ofrunningasuccessful organization,andis averybroad model.
Balancedscorecardis muchnarrower andsimplylooks at thewaytheorganization
measures its performance. All Baldrigewinners canbefoundtohave good scorecards,
but most organizations withgoodscorecards couldnot winaBaldrigeAward.
Now,ontotheotherapproaches likeSix Sigma,Lean,orABC. Theseareall very
specificways ofimprovingquality,productivity, orreducingcosts. All involve
collectingdata,analyzingthedata,andmakingchanges tothewaythings aredoneto
improveperformance. All ofthemeasures involvedintheseperformanceimprovement
programs shouldultimatelylinktoscorecardmeasures forthebigboss. In otherwords,
ifprograms likesix sigmaorlean aresuccessful,theywill leadtoreduced costs, higher
profits, greatercustomer satisfaction,andotherkeyoutcomes. So,themeasures forthese
programs dodirectlylink tothebalancedscorecardofanorganization. For some
individuals intheorganization,thesemeasures from initiatives likesix sigmamaybepart
oftheirscorecards. Forexample,amanufacturingmanagermight havedefects per
millionas oneofhis scorecardmeasures. Eventhebigboss might beinterestedinhaving
someofthesemeasures onherdashboard. Thepoint is that themeasures linkedtoanyof
theseimprovement initiatives shouldlinktoimportant outcomes fortheorganizationor
youshouldnot bedoingthem.
Thekeywithanyoftheseprograms is tothinkabout balance. There are a lot of
organizations that implementedTQM orcontinuous improvement programs inthe1980s
and1990s onlytofindthat otheraspects ofperformance got worse. Qualityimproved
but moraledeteriorated, orprofit margins declinedbecauseofthecosts associatedwith
improvedquality. All of theseimprovement initiatives tendtofocus oneitherqualityor
costs. Thesetwofactors bythemselves donot makeforahealthyorganization. The
scorecardprovides dataonqualityand costs, but also provides informationonemployee
satisfaction,safety,new product/servicedevelopment,customerrelationshipbuildingand
otherfactors. Management fads comeand go and five years from now you canbet there
will besomenewthree-letterprograms everyone is enamoredwith. Balancedscorecard
is not afadorprogram,it is alogical wayofmeasuringhowtheorganizationperforms on
its missionandvision.
Whataretheusual suspects of measures and how dothesedifferfromindustryto
industry?
Most industries havetheirownpreference forfinancial measures andsome operational
statistics. Somelikeeconomicvalue-addedrather thanprofit,somelikeEBITDA,some
likedefects permillion,orcost of goods sold. It is rarethat Ineedto goin andre-dothe
financial oroperational measures of anorganization. Most ofthesearetriedandtrue,
andhavebeenproventobevalid. Almost all ofthem arelaggingorpast-focusedmetrics
though. Wheremost oftheworkneeds tobedone is comingupwithpredictiveor
leadingindicators that linktotheseoutcomemeasures. Also, it is raretofindan
organizationthat does a goodjobwithits employeeorcustomermeasures. Istill seealot
ofannual surveys ofcustomers andemployees that providemostlyuseless data. There
area few goodones out therethat actuallylinktooutcomes, but 90%ormoreofwhat
I’veseenare garbage. TheGalluporganization’s 12-questionemployeesurveyis the
onlyone Iknowofthat is basedonsound researchandis linkedtoimportant outcomes.
Most customersurveys donot doagoodjobofpredictingcustomer-buyingbehavior.
Thecustomerandhuman resources sections ofthe scorecardaretheones needingamajor
overhaul inmost companies. Ihaveseena few companies that have good measures in
theseareas, but not many. FedEx has someprettygoodmeasures inthese areas, as does
IBM.
Here’s alist ofsomeofthemost commonbadmetrics I’veseen:
Employeeturnover
Trainingattendance
Annual employeesatisfactionsurvey
Cost ofnon-conformance orre-work
Customercomplaints
Customersurveys
Lines of codeperdayfor softwaredevelopers orpages/dayfor writers
%Budget spent for government organizations
Averagecall lengthforcall centers
#oflost timeaccidents.
Someofthesemeasures arequestionablebecause theymayshowpositiveornegative
performance–someturnoverofpoorperformers is good,forexample. Customerand
employeesurveys are easy, but arenot doneoften enough andrarelypredict future
behavior. Measures like call lengthinacall centerorlines ofcodeforsoftware
developers endupdrivingthewrongbehaviors from employees.
Most ofthegoodmeasures Ihaveseenareindices madeupofseveral sub measures. For
example,CibaPigments, adivisionofNovartis, has asafetyindex that is 50%basedon
accidents andseverity,and50%basedonpreventivemeasures likesafetyaudit scores,
training,and wearingprotectiveequipment. It is raretofindasinglemetricthat provides
agoodoverall viewofsomethingcomplicatedlike customersatisfaction,employee
morale,orsafety.
Whyautomatethescorecard,whatvaluedoes this bring?
Asmall shippingcompanyIworkedwithin LongBeach,CAused amanual approachto
communicateperformancedata. Intheircustomerservicedepartment theymadeabig
bulletinboardthat lookedlikethedashboardof a car,containingabout 10measures.
Everymorning,themanagerwouldcomputeperformance from yesterday,using
worksheets, andmovetheneedles onthedials toshowperformance onthe dashboard.
Employees checkedout thedashboard eachdaybecauseit was funto get feedbackon
howtheyperformed,and theirbonus was linkedtomakingall the gauges ‘green’or
hittingtheirtargets. This low-tech approach actuallyworkedquitewell,andthe
companyendedupputtingdashboardbulletinboards inotherdepartments as well. The
bigupsidetoanapproachlikethis is that itis cheapandeasy. Nosoftwaretobuy,no
system that canmalfunction,andnocomputers to useincreatingreports or performance
charts. Thedownsideis that it was verytimeconsumingtocalculateperformanceona
dozenorso measures eachdayandkeepthe gauges updatedonadailybasis. Further,the
dashboardshowedtheperformanceofthe wholedepartment,andpeopleliketoseehow
theyindividuallyperformed.
Another government organization Iworkedwith hadamorehigh-techapproach. They
hadafull-timeemployee computeperformanceandcreate graphs andcharts eachday
usingexistingsoftwarelikeExcel Spreadsheet andPowerPoint. Charts werethen
distributedelectronicallytomanagers, preparedas slides formeetings, and hard-copy
reports. Again,nomoneywas spent onsoftwaretheorganizationdidnot alreadyown.
Whilebothoftheseapproaches dowork,most ofmyclients inbothbusiness and
government have elected topurchaseoneofthescorecardsoftwarepackages onthe
market. Suchasystem pays foritselforprovides agoodROIseveralways. First ofall,
noonehas tokey-indata. Dataarepulledfrom existingdatabases andput intothe
scorecardformat. Noonehas tomanuallycreate charts and graphs, which oftensaves
over$100,000that you might mayfor afew administrativeemployees todothis. A
secondwaythis saves moneyis that analysis ofthedatais possibleveryquickly. This
saves timeinextrameetings, phone calls, emails, andothermethods oftryingtofigure
out whyaparticularperformance gaugeis redor yellow. Thesoftwarepackages onthe
market todayallowmanagers to‘drill down’manylayers intothedatatodeterminethe
root causeof aproblem. This speeds upproblem solvingandallows formoreaccurate
decision-making. Anotherbigadvantageof automating thescorecardthat Ihaveseen
withseveral ofmyclients is that theamount oftimemanagers spend goingtomeetings
lookingat performancedatadeclines significantly. AmilitaryorganizationIworked
with,forexample,usedtohaveamonthlymeetingofall thetopleaders (20+people) for
anentireday(8-10hours). Aftertheyimplementedthebalancedscorecard andput
everythingontheirintranet set,thelengthofthemeetingwent from 8to2hours.
Multiplythe cost savings times hundreds ofmanagers experiencingasimilarreductionin
meetingtime,andthesoftwarepaid foritselfinthefirst fewmonths.
Ihavebeentouser group meetings ofseveral scorecardsoftwarevendors and Ihaveseen
alot ofbadscorecards withdumbmetrics put intonice green, yellow,redintranet-based
charts though. First makesurethat youhave goodmeasures, andthenthinkabout using
thesoftwareto automate thesystem and communicateperformanceinan easy-to-
understandfashion.Don’t wait until youthinkthe scorecardis prettywell finished. It
will neverbefinished.Youwill always beadding,deleting, andchangingmeasures as
youlearnthings, newstrategies aredeveloped,or problems arise. Most of myclients buy
thesoftware at thebeginningofthescorecardinitiativeandstart gradually‘lightingup’
thedashboard as dataare collectedoneachofthe metrics. At therisk ofsoundinglikea
softwaresalesman, Ithinktheseprograms do alloworganizations todramatically
improvetheextent towhichtheymanage withdatabygettingreal-timeaccess to
performance, andbeingabletolookunderthehood,ordrill downas deepintothedataas
neededtofindout whytargets arenot beinghit. Thereis still waytomuch ‘shoot from
thehip’management goingonout there,andthis allows youtoput morescienceinto
runninganorganization.
Whatwould you tell aclienttolook forwhen evaluatingscorecard software?
Compatability
Afirst concernmight be whetherornot thesoftwarewill workwiththeexisting
hardwareandsoftwarethecompanyhas. Aclient ofminepurchasedoneof thesoftware
packages andwas toldbythesalesmenthat everythingwouldbehookedup withafew
days workfrom aSystems Engineer(SE). Theclient endeduphavingtohireseveral SEs
from thecompanyforseveral weeks to get everythingtoworkproperly. Theyalso hadto
paythousands ofextradollars that werenot inthe original bid
Graphics
Anotherthing Iwouldlookforis the graphics. Someofthesoftwarehas charts and
screensthat containwaytoomuchinformationandis hardtoread. Iwouldusesomeof
thesamedata andpresent it toasampleofemployees usingthetwoorthreesoftware
graphicformats you are consideringandseeiftheyunderstandwhat the charts are
saying,andwhichformat theyprefer. Somesoftwareuses gauges that look likethe
dashboardof acar,some havecolor-codedbars, someuseother graphingformats. See
whichone yourpeopleprefer.
Flexibility
Somesoftwarerequires that youuseKaplan &Norton’s model for yourmeasurement
categories, others allow youtousewhatever you want. Someonlyallowred,yellow
greencolors toshowperformance,others allowa rainbowofcolors. Some scorecard
software requires that measures areall weightedinpercentages and roll uptooneoverall
measureof adimension ofperformancesuchas financial results or customersatisfaction.
Somepackages allowconnections tootherperformanceinformationlikeworddocuments
orspreadsheets; others donot.
Analytical Capability
Someofthesoftwareallows manydifferent types ofanalyses tobedonewiththedata.
Forexample,most organizations liketobeableto‘drill down’intothedatatodetermine
whytargets might not be met inaparticularpart of thecompany. Findinglinks or
correlations betweensoftermeasures likeemployeemoraleor customersatisfactionand
hard measures likeprofits ormargins is also important. Seewhat sort of analytical
capabilities thesoftware has andhowcumbersomeit is touse. Oneofthe mainbenefits
ofusingascorecardsoftwarepackageis beingabletoquicklyand accuratelyidentify
problems anddiagnosetheircauses, so makesure thesoftware candothis. Someofthe
packages I’veseen arenot muchbetterthanon-linedatabases withimprovedgraphics.
StabilityoftheCompany
This is oneofthemost important factors. You want tobuyfrom acompanythat is going
tobearoundinthefuture. Several scorecardsoftware companies have goneout of
business inthelast few years, and youdon’t what tobuyfrom acompanylikethat who
maynot be aroundtoprovide youwithnewreleases andothersupport.
CustomerService
Trytalkingtosomeofthesoftwarecompany’s otherclients and ask them howlongthey
wait onholdwhencallinginwithaquestionorproblem. Ask about thecompetenceof
thepeopletheydeal withat thesoftwarecompany. Ask about howthecompany
incorporates customerfeedbackintonew releases andhowoften. Inshort,findout what
kindofservice you are goingtoreceive afterthesoftwareis installed. Software
companies arenot generallyknownfortheirservice,so if you findonethat is really
customer-focused,this is thecompanytobuyfrom. If youcompareprices andfeatures
ofthedifferent scorecard softwarepackages onthemarket,thebest ones areall very
similar. Thedifferentiatingfactoris thecompanyyouarebuyingit from andtheir
servicelevel andstability.
Whataresomeof thebiggest mistakes you have seen organizations makein
designingorimplementingthebalanced scorecard approach?
Myjobofteninvolves cominginafew years downtheroadtohelpcompanies fix
dysfunctional scorecards, so Iam grateful forthe mistakes. Icouldwriteanentirebook
onthemistakes Ihaveseenorganizations makein designingandimplementing
scorecards. (Cometothinkofit, Ihavealreadywrittentwobooks onthis –entermy
nameonamazon.com.) Ihavetalked about acoupleofthemore commonproblems
already. Not havingaclearmission,vision,andset ofvalues is ahugeproblem with
manyscorecards. Ihave seentwowhat Iwouldcall architecture flaws inscorecards, and
onethat is aflawindeployment versus design.
1. DesigningtheScorecard ArchitectureAround KeyProcesses
Onefairlycommonmistakeis tousetheorganization’s keyprocesses as theoverall
frameworkofthescorecard. AmajorFortune100 manufacturerdesignedtheir
scorecardthis way. The categories ofmeasures werekeyprocesses suchas research
anddevelopment,marketing,manufacturing,supplychainmanagement,distribution,
etc. Sinceall units ofthe companyhadprocesses likethis, it seemedlikeagood
commonarchitecturefor thescorecard. Theproblem withthis approachis that it
does not focus onoutcomes orsatisfyingtheneeds ofvarious stakeholders.
Producingoutcomes like happycustomers andprofits involves manyprocesses–not
oneortwo. Thescorecardarchitectureshouldbefocusedonthedifferent
stakeholders andtheirneeds–not processes. The twomost commonscorecard
models areKaplan &Norton’s fourcategories: 1.Customer,2.Financial,and3.
Internal,and4.Learning, Innovation,Growth,ortheBaldrigeresult categories of1.
Customer,2.Financial/Market,3.HumanResources, 4.Organizational Effectiveness.
Boththesemodels arequitesimilarandprovidea balancedset ofcategories that
address thedifferent stakeholders. Youdonot needtoadopt atextbookmodel like
oneofthese as is, but it shouldapproximateoneoftheseapproaches.
2. DesigningtheScorecard AroundGoals and cascadingit DownUsingStrategy
Maps.
This approach appears tocomefrom Kaplan &Norton’s most recent book about the
‘Strategy-FocusedOrganization’,andthemodel seems tohavebeenmisinterpreted
bymany. Irecentlyreviewedthedashboardofa majorFortune500 energycompany
that designedtheirscorecardaround12or15 goals, andthencascadedthis same
architecturedowntothe units anddepartments. Thegoals madesenseat the
corporatelevel and addressedthings likereducingsupply-chaincosts, improving
diversity,andincreasingmargins. Whenthis architecture got downtothe unit or
department level,the categories ofmeasures didnot makesense. Eachdepartment or
unit hadtocomeupwithmeasures that linkedtoall ofthegoals, andmanyhadno
relationtosomeofthe goals, andputtingmeasures inplacewas meaningless. For
example,adepartment that hadnoreal suppliers struggled withametriclinkedto
improvingsupplychain management. Anotherdepartment that has 11people
suggestedtrackingdiversityandturnover,which wouldbothbeobvious without
collectinganydata.
TheU.S.Armyhas adoptedthis “StrategyMap”approachtodesigningascorecard
fortheentire Armyandthencascadingit downtootherunits andlocations. There
aresomeserious structural flaws inthis scorecard as well. Someofthe goals sound
good,but themeasures donot providedataonachievingthe goal. For example,one
ofthegoals is toimproveleadershipofthe Army,whichis fine. Themeasureofthis
is howmanypeoplehave attendedsomethree-dayleadershipcourse –butts inchairs.
Ihighlydoubt that thereis alinkbetweeneffective militaryleadershipandattending
somemanagement-trainingcourse. Someofthesebadmeasures and goals arenow
beingcascadeddownthroughout thearmyandunits arehavingtroublefindingthe
linkbetweenwhat theydo,andsomeoftheoverall Armygoals.
Strategymappingis a great concept forensuringthat lower-level gauges leadto
success onhigher-level gauges. However,toomanyofthoselowerlevel gauges are
beingidentified without anyresearchtoprovetheirvalidity.
3. Not CascadingtheScorecards Down far EnoughintheOrganization.
Manybusiness and government organizations designscorecards forthebigboss,and
thenext coupleoflayers, andthencommunicateperformancetoall employees ofa
department orunit. Unless thescorecardis cascadeddowntosmall teams andeven
individual employees, it has verylittlechanceof changingbehavior. Most ofthe
peopleworkat thebottom oftheorganization,not thetop. Peopleareonlyinterested
indatathat theycaninfluence. Showinganhourlyworkerhowthewholeplant
performedis kindofmeaningless. Salespeople arenot reallyinterestedinhowthe
entireteam didinmeetingsales goals; Iwant toknowhow Idid. Peopleliketoget
feedbackontheirperformance. Tomakethat feedbackinterestingit has tobeon
measures that wecanstronglyinfluence. Many,ifnotmost,largeorganizations make
themistakeofnot developingscorecards forteams andindividual employees and
thenwonderwhyemployees arenot moreinterestedincompanyperformance.
Therewas afadthat becamepopularseveral years ago called “Open Book
Management”. This involvedteachingall employees toreadabalancesheet and
communicatingcompanyperformancetoall levels ofemployee. Whilethis sounds
great intheory,manyfoundthat employees’eyes glazedoverquicklyinthesecourses
designedtoteachthem to understandconcepts like gross margin,assets, and
productivity. The answeris not torunclasses toteachworkers howtounderstandthe
boss’s dashboard. Theansweris togiveeachemployeehis orherowndashboardthat
measures thingsabout theirjobperformance. Iam all foropencommunicationand
sharingofperformancedatawithemployees. But, not everyoneneeds tounderstand
all ofthemeasures ontheboss’s dashboard.
Whatis thevalueof standaloneversus integrated performance management?
Thereis novalueinmakingthescorecard astandaloneproject orinitiative. In fact,it
couldbehugelydetrimental andconfusingtotheorganizationtodoso. Embarking
onascorecardinitiative means that you are goingtofundamentallychange theway
youmeasuresuccess in yourorganization. It means that youhavetoreject the
paradigms that sayfinancial performanceis all that matters, andthat these soft
measures ofthings likecustomerandemployeesatisfactiondonot reallytranslateto
thebottom line. It also means acceptingtheidea that shareholders orowners arenot
youronlyimportant masters.
Without linkingthescorecardtostrategicplans, compensation,performance
appraisal,monthlycompanyreviewmeetings, annualreports toshareholders,
operational plans, budgeting,improvement initiatives, andothersystems, it is awaste
oftime. Asidefrom communication,thesinglebiggest problem Iseeinjust about all
large government andbusiness organizations isalignment. In fact,Drs. Kaplanand
Nortonhavea newbook out in2006that is aboutalignment. People are goingoffin
toomanydifferent directions participatingintoo manyconflictingthree-letter
management programs andimprovement initiatives andtryingtoget better at too
manythings. All this leads tochaos andconfusion. Themainbenefit ofanapproach
likebalancedscorecardis that it forces anorganizationtothinkthroughimportant
issues likewheredowe want tobein5 years (vision)andwhat dowestandfor
(values)andit asks that youmeasuretheseimportant things. Everyemployee
understands thedirectionandmissionofthecompanyandhas a dashboard that tells
him howam Idoingat mypieceofthemissionandvision. This is howorganizations
get alignedandaccomplish great things.