Aiming resources at success

by Tim Fielden

February 16, 2001 —

A WELL-DEFINED STRATEGY is the key factor behind any successful business initiative, be it a QoS (quality of service) enhancement or a sales force reorganization. Indeed, a company that fails to develop a well-defined set of performance targets will risk miscommunication between business units and invite severe operational inefficiencies.

Many companies have begun tapping the power of a BSC (balanced scorecard) to define enterprisewide strategies and metrics. Developed in the early 1990s by Drs. Robert Kaplan and David Norton, the BSC approach is quickly becoming one of the most widely implemented management processes in the world.

IDC suggests that the BSC technique will continue to grow in popularity because more and more organizations are investing in analytical activities such as forecasting and optimization. Meanwhile, Meta Group analysts predict that all major ERP (enterprise resource planning) vendors will soon deliver scorecard functionality in their products. In fact, many of the big ERP players already do. And analysts at Gartner maintain that at least 40 percent of Fortune 1000 companies will soon have BSC programs up and running.

Often called strategic enterprise management because it facilitates management from the highest executive level, as opposed to midlevel branches or departments, a BSC is a managerial tool for evaluating your company's business performance. It identifies four perspectives -- customer, internal, financial, and learning -- that are used to monitor and measure specific strategic objectives. Thus, a BSC system can identify potential loss leaders, spot sales trends, and pinpoint supply-chain deficiencies and help companies organize around changes that will increase revenue.

The method can illustrate cause-and-effect relationships between the perspectives. For instance, a well-integrated BSC system will alert you to the fact that the revenue gained from employing a new team of mobile sales representatives (the financial perspective) is not worth the IT overhead required to support it (the internal perspective).

A BSC also can recognize trends that aren't directly linked to financial metrics, such as the skill level of your workforce or your customers' opinions of your company.

Over the past few years, BSC features have begun shipping in a wide variety of packaged applications. Most of the early adopters were big ERP players such as SAP, PeopleSoft, Baan, and Oracle, but the field has expanded to include smaller analytical application providers, such as Gentia, CorVu, and Pilot.

To help companies understand this complex methodology, Kaplan and Norton created the Balanced Scorecard Collaborative. The collaborative publishes functional standards and certification programs to facilitate consistent and appropriate use of the BSC in software applications.

Although not easy to adopt, a well-implemented BSC program can enormously benefit your company's bottom line. It can execute and align complex programs of change and can reveal the drivers necessary to maintain long-term competitive performance.

A BSC also will save you the substantial cost of redeveloping entire strategies from scratch because of a few faulty objectives. Although the BSC requires a periodic redefinition of goals to account for shifting market and operational factors, it will divide your master strategy into manageable business targets and will ferret out deficient objectives that must be reassessed.

Because a BSC is integrated in every level of an organization, it channnels all your efforts in the same direction. Although all companies have, or should have, a coherent business strategy, many departments and employees may actually be operating contrary to it. For instance, members of your application development group may be taking Java classes even though you are planning to outsource your Java development needs.

The sum of such inefficiencies can cost your company substantially. A BSC will integrate your goals with the daily functions of each employee and department, allowing you to maximize your resources and minimize useless or wasteful activities.

Robert Gold, a principal IT practice leader at the Balanced Scorecard Collaborative, explains that one of the most important steps in building a balanced scorecard is "gaining the commitment of senior IT management through formal training or workshops."

Indeed, a common cause for a failed or delayed scorecard is a lack of buy-in from senior management. Executive leadership is essential to a well-integrated strategic effort because objectives must originate at the top and cascade through the organization.

Once acceptance is complete, the next step is to develop a strategy and translate it into operational objectives with specific targets. With these metrics in place, your company can map and prioritize new and existing initiatives.

Although many IT departments operate according to independent key performance indicators and critical success factors, these objectives usually focus on internal IT targets alone. As Gold says, "These measures may be important in day-to-day operations, but they do little to connect IT to the stakeholder community." A BSC empowers IT workers to monitor enterprisewide strategies and pinpoint areas of substandard performance, which IT is often the first to notice.

Although it depends greatly on the size and complexity of an organization, a typical BSC implementation, handled by a small team of experts, will take somewhere between three and six months. Most companies will need the assistance of professional consultants during this process to help define targets and measurement systems.

Should you decide to purchase BSC software and guide its implementation internally, keep in mind that it should do more than merely report data; it also should act as a guide to setting initiatives and a vehicle for distributing new strategy. Moreover, a BSC application should support the many OLAP (online analytical processing) tools required to target hidden internal assets and identify potential revenue-increasing opportunities.

In addition, IDC asserts that a BSC system should use time-oriented data from many sources, such as customer support, order management, and accounts receivable, instead of feeding directly from transactional systems. Because transactional systems regularly update records, they often obliterate the financial history your scorecard needs to function.

Finally, a scorecard should preserve analytical data in a multidimensional database that permits analysis by key measures and dimensions, such as cost, revenue, time period, customer, and product.

As with any business intelligence initiative, BSC isn't a panacea. It can't correct fundamental flaws in your business or force your employees to change inefficient practices. Still, the BSC is more than just a passing fancy: The BSC has scored accolades from Harvard Business Review, which designated it as one of the most influential business ideas of the past 75 years. By linking objectives, initiatives, and measures to your company's overall strategy and corralling disparate groups into a unified effort, a BSC will greatly increase your chances of long-term prosperity.

Balanced Scorecard

BUSINESS CASE

The BSC method helps companies make informed business decisions based on current and projected metrics. BSC output acknowledges both financial and nonfinancial factors, rendering a complete view of your company's position. By unifying separate departments within a corporation, the method can also replace an "us vs. them" attitude with one of cooperation and shared focus.

TECHNOLOGY CASE

An effective BSC application should support OLAP tools and access time-oriented data from many sources. It should also preserve analytical data in multidimensional databases that allow analysis by specific dimensions.

PROS

+ Provides opportunity for collaboration at all levels

+ Channels resources toward strategic objectives

CONS

- Requires time, commitment, and costly consulting assistance to build and implement

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