Corporate health: getting a balanced scorecard

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Corporate health: getting a balanced scorecard

Developing a balanced scorecard for your business means that you are properly integrating strategic and financial planning. And that can only be a good thing, says Julia Vowler

Most company managers, when they hear that a new management fad is on its way down from the boardroom, dive for the cover of the nearest desk. When it comes to balanced scorecards the IT director needs to dive the fastest.

This particular management technique will hit them with a double whammy. Not only will they be expected to apply the scorecard to the performance of their department, they will also be expected to implement the balanced scorecard software upon which the entire corporate exercise will run.

Doing a corporate balanced scorecard is, advises James Creelman, author of Building and Implementing a Balanced Scorecard, "a major undertaking."

For a company to get real benefit it must embrace the concept top to bottom, for the long term. Corporate health, courtesy of the balanced scorecard, requires dedication, determination and perseverance.

Applying the balanced scorecard approach will turn your company from an event-driven, out-of-condition corporation into a coherent, targeted, strategy-focused athlete capable of the fast-market-response sprint level and the sustained-growth marathon level.

There are two key aspects of balanced scorecards. It measures the ultimately financial value of corporate intangibles (training, quality, responsiveness, esprit de corps and so on), by describing the linkages between an intangible such as staff morale with a tangible such as earnings per employee, via the intermediaries of business process and customer perspectives. Some of those linkages will come as a surprise.

"You start with a hypothesis of what you think you need to do," says Creelman, but as the exercise proceeds and the feedback starts to come in, an organisation can often find "that the things they think are important [for value creation], aren't."

With the results - expected or not - in hand, comes the real work of a balanced scorecard. Key to the whole exercise is that the balanced scorecard goes beyond mere measurement into actual change. It's an iterative process of first gathering the scores from top to bottom in the organisation, and then changing the organisation so that the scores improve next time they are measured. It's the compass by which to steer the company.

In a balanced scorecard environment, say the scorecard's creators, David Norton and Robert Kaplan, strategy becomes everyone's job. It becomes a continuous process of perpetual market and performance target checking, not a one-off piece of boardroom shelfware.

But you can only get where you want to be if you know where you are already. For that reason, the scoring process has to be comprehensive, delving down to individual employees, then climbing upwards towards the chief executive's office.

It's both a top down process, "sharing the strategy and aligning the workforce", and a bottom up process, "internalising and executing the strategy" say Norton and Kaplan.But because it is a major exercise to undertake, "there's a danger of getting too worried about the how of doing it, rather than the why", warns Creelman.

Certainly, from the IT director's point of view, the how must inevitably involve automation. Fortunately, says Creelman, "there's a growth market in balanced scorecard software. There's a whole range of companies (a good dozen or so) who have developed tailor-made balanced scorecard tools".

As the balanced scorecard management methodology takes off - last year a survey showed that 55% of US companies and 45% of UK firms claimed to be doing it - the market will continue to grow says Creelman.

For the IT director trying to get on with their day job, their own and their staff's attitude towards the arrival of balanced scorecards, may well change during the course of its adoption. First, they may become a genuine convert, and embrace its principles and practice from the heart. Second, they may develop an even more intimate relationship with the scorecard - it's in the second year of operation, points out Creelman, that companies tend to start tying staff remuneration to their scores on the scorecard.

IT directors would do well, perhaps, to keep their eyes even further out on the scorecard horizon. One of the maxims of the approach is to urge integration of strategic and financial planning, and integrating budgets which may, further down the line, have implications for the IT systems underlying such processes.

  • Building and Implementing a Balanced Scorecard is published by Business Intelligence. Robert Kaplan and David Norton will be presenting a balanced scorecard seminar in central London on 21-22 June. Tel: 020-8679 3300.


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    This was first published in May 2000

     

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