Automating the Balanced Scorecard Methodology

While the business community has seen the ebb and flow of many management strategies and philosophies, we are now in the midst of the rise of a new management methodology originally expounded in the Harvard Business Review in 1992. The "Balanced Scorecard" has emerged as a management tool for translating organizational vision into a set of measurable strategic and/or tactical objectives.

At the heart of the balanced scorecard method is the belief that an organization's vision can best be achieved when viewed objectively from four perspectives:

* How will we look to our stakeholders?

* How must we look to our customers?

* What internal processes must we excel at?

* How can the organization learn, innovate and improve?

Derived from an organization's vision, strategy is at the center of the process. Once the strategy is decided upon, you can then determine what to measure. Measures -- often referred to as Key Performance Indicators (KPIs) -- will be used to determine if you are progressing toward your goals. Since balanced scorecard management is an iterative process, it naturally lends itself to automation.

The process of measuring performance data encompasses several tasks. The first step is to identify the sources of performance data. To make this easier, you can classify the data as internal or external. Internal data is information about internal financial and operational activities. External data is information about your industry, competition, etc.

Once the performance data is identified, it must be captured. However, keep in mind that performance data captured by your operational systems is not always usable by your scorecard software. Some scorecard solutions require that all data be fed into a proprietary database before it can be used. This is typically a manual process and exacerbates the difficulty and complexity of implementing your balanced scorecard solution.

As a result, it is highly recommended that you find a scorecard solution that provides direct connections into your existing computer applications and databases. This will allow your scorecard to retrieve such performance data automatically at regularly scheduled intervals. Doing so will prevent you from having to capture performance data each time you desire an updated scorecard.

Once performance data is captured, you must specify what you want to measure. This measurement "model" will reflect your organization's unique strategy and should:

* define performance targets, including best/worst and industry benchmarks;

* normalize scores to scale;

* establish relative importance of KPIs;

* establish relationships and linkages between KPIs;

* specify measurement periods;

* and provide a collaborative environment for commentary.

The measurement process will bring to light various performance symptoms. The ultimate goal of the business manager is to understand what actions, to take in order to improve performance. However, they must first understand what is causing the symptoms. As a result, the analysis portion of the balanced scorecard cycle is often the most critical component. In other words, a manager should not prescribe a solution until they have performed a proper examination and developed an accurate diagnosis. Without this proper examination, the manager is like a doctor prescribing brain surgery for a simple headache.

A prerequisite for performing analysis is a connection to the performance data -- if you can’t access the data, you can’t analyze it. After accessing the data, you will need to analyze it in a variety of ways. Scorecard automation solutions should provide the ability to view data in numerous graphical formats. However, I must reemphasize that such visual representation of the data is not, of itself, analysis. Analysis begins when the user is able to examine or interactively investigate the data from a variety of perspectives.

In order to thoroughly examine the data and make the right diagnosis and prescription, the scorecard must first analyze reasonable volumes of data. Once again, this necessitates direct access to the underlying performance data including time, geography, product, sales volumes and other quantitative measurements. As such, the amount of data to be analyzed could be substantial.

Another factor contributing to the volume of data is the need to analyze performance results over time necessitating the continuous storage of historical data.

It is rather difficult to automate the process of implementing and effecting actual change in your internal business processes. But technology can be of much assistance. While most people are, by nature, resistant to change, they are far less so when they clearly understand why the change must occur. A fundamental benefit of the balanced scorecard is its ability to communicate organizational vision and strategy.

Since having greater insight into how one contributes to organizational success is often a powerful motivation for change, your scorecard solution should clearly communicate strategic objectives and facilitate a collaborative environment for the collection of feedback.

As working environments become more collaborative in nature, the necessity to share analysis results with others becomes more critical. The integration of scorecard automation software with e-mail and Internet technologies can make this relatively simple to achieve.

The ability to automate and collaborate will enable organizations of all types to reap the tangible business benefits of the balanced scorecard.

Alan M. Missroon is president of CorVu North America (Minneapolis). He has worked in the business intelligence and data warehousing industries for over twelve years.

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