The Unbalanced Scorecard - Part 2
In our previous newsletter (Part 1), we talked about the balanced scorecard and how its failure is representative of companies that are struggling to implement meaningful metrics. We outlined some basic principles for aligning the scorecard.
Creating Balanced Scorecard Metrics that are Truly Relevant
In a roundabout way, most scorecard creation processes start with a blank sheet (or a blank scorecard) and try to answer the question: what measures do we want to include in our scorecard? In my opinion, this is the wrong approach. Metrics are nothing on their own, and they can't be dreamed up in a brainstorming session.
To be truly relevant, scorecard metrics must fall out of your business plan. At every level of a plan (strategic, operational, and tactical) organizations must ask the question: how will we know if we are successful? One of the reasons I hate the typical 5-7 year vision statement is because they are usually all fluff, and impossible to measure. On the other hand, if an organization crafted a "Practical Vision" that describes the desired future state 3 years from today, they have a good starting point to find some relevant metrics. When an Executive Team clearly states a Practical Vision, they must answer some key questions about every component of that vision:
- How will we know we arrived?
- How will employees notice a difference?
- How will clients notice a difference?
- How will we be judged and measured on how this looks in 3 years?
- What specific measures and targets could we use to measure the success of this part of our vision?
- Any other ways to state success of this component?
Not only does this keep the vision out of "motherhood and apple pie" territory, but it starts to define the most important things that an organization should be tracking in the next 3 years. This process needs to be continued as the organization looks at each level of its plan. For example, with my clients, the next step would be to clearly define the handful of Strategic Imperatives that must be accomplished in the next 12 to 18 months. Once those Strategic Imperatives are roughed out, the Executive Team must try to answer more questions, this time for each and every Strategic Imperative:
- What is the primary objective?
- Who is most accountable for the results?
- What important background and other context have contributed to the need for this SI, and will help us explain our rationale to others?
- What are the likely milestones along the way to success?
- How should we measure success? What metrics can we use from our scorecard? What metrics do we need to add to our scorecard?
- What are the associated risks?
- What explicit or implicit assumptions have we made?
With these questions answered, an organization describes what measures are crucial to measuring the success of an organization in the next 12 to 18 months in a functional and workable way.
Through this process, the organization has described, very practically, what they really want to look like in 3 years and the strategic imperatives that must be accomplished in the next 12 to 18 months to ensure that they are on track. Now the metrics that measure the success of those endeavors are the most important metrics to that organization. A huge side benefit of this approach is that if the Practical Vision and Strategic Imperatives are balanced (they always are), the metrics will be balanced. No more "balanced" scorecard that is heavy on financial metrics and pays lip service to the customer and employee perspectives.