Scorecards – from EPM to "Individual Performance Management"

Scorecards and dashboards are often rolled into a singular topic in many conversations about Enterprise Performance Management - especially when discussing traditional BI-type reporting. This is becuase the true functionality of scorecards is often misunderstood because the visual representation of scorecards, as well as dashboards, are so similar.

How do Scorecards differ from Dashboards?

Scorecards are all about aligning individuals’ goals and targets with the strategic direction of the enterprise.

The nuts and bolts of scorecards does not come down to unique technology. What makes a scorecards system tick is its business logic and how the use of the system imrpoves the day-to-day activities of the business. "10% technical and 90% analytical"! Although the right technology can enhance the functionality of a scorecard implementation, a scorecard implementation should be a top-down, business-led project, not a technology-led project.

What is a Scorecard?

Let us consider the most common variant of the concept, the Balanced Scorecard method introduced by Dr Robert Kaplan and Dr David Norton in the early 1990s.  The Balanced Scorecard is the entire management system that enables the enterprise to clarify its strategic vision and translate this into individual actions. A single scorecard is a combination of goals specific to the individual that are comprised of weighted metrics.  In the Balanced Scorecard methodology, these goals are organised into four categories or perspectives – these can be summarised as the People, Internal Process, Customer and Finance perspectives.  These are often shown as four rectangles arranged 2 x 2, with all the details of the metrics, their weightings, and RAG (Red / Amber / Green) statuses against each to show up problem areas.

This is most peoples’ typical experience and expectation of the presentation of a scorecard.  In many organisations where scorecarding has been implemented (fully or partially), these are presented using the world’s favourite reporting tool, MS-Excel!  However, leaving aside the details of the metrics and weightings, this 2 x 2 arrangement of the four categories hides the real power behind the four categories and how they inter-relate.  To consider this further, we need to introduce more jargon – strategy maps.

Strategy Maps

Strategy Maps are designed to show the inter-relationships between measures that weave together to describe an organisation’s strategy and the associated business process logic.  These are typically visualised by presenting the four perspectives from left to right (People on the left, Finance on the right).  All the goals and metrics are positioned in boxes in the four columns, then arrows are drawn between the boxes showing the inter-dependencies or cause-and-effect relationships.  Typically, the arrows will mostly point from left to right – improvements in a People metric (such as better-trained staff) may result in an improvement in a Customer metric (better customer satisfaction) which improves another Customer metric (overall spend per customer) which improves a Finance metric (profitability).

Definition of these maps is a key part of the process of designing a scorecard system for the enterprise.  Well-defined strategy maps enable the logical linking of different metrics enabling ‘drill-through’ to help determine the root cause of a problem.  If one of the metrics on our scorecard is Red, we can trace back to the other metrics that affect this, and keep tracing until we reach a metric that appears to be the cause, rather than just an effect.

We can also look at the Strategy Map from right to left when first determining the targets for each individual metric.  Corporate strategy is usually defined initially in financial terms (increase revenue by 20% per annum, or improve net profit by 10% in the next two years) – it is necessary to work backwards along the arrows of the strategy map to consider the measures that cause changes, and to define the appropriate goals that will result in the desired effect.

Individual Performance Management

In theory, an organisation could have just one high-level scorecard; The board defines the strategy, works out the strategy map, sets some targets and has the relevant measure data collected and presented in a nice dashboard report.  That takes care of the high-level strategy, but how does one cascade a similar approach to aligning individuals’ goals with those of the enterprise?

The Individual Performance Management Scorecard model should contain measures specific to that individual or group. These measure should link logically through to the high-level measures of the enterprise and therefore consistently make sense to the individual recipients of relevant scorecards.

Where does Technology come in?

A typical scenario where a decidated scorecarding application is not utilised: Manual documentation of the measures and strategy maps, manual data collection (probably into spreadsheets), manual preparation of hundreds or thousands of individual scorecards (again, on spreadsheets) which then have to be emailed to the right people, in time for them to action the information presented and trying to achieve effective drill-through with multiple linked spreadsheets!

MESSY!

It should now begin to be apparent where the right technology can contribute to an effective scorecarding implmentation in the following ways:

• Management of a complex network of inter-related measures, metrics and weightings against the organisation chart of individual recipients
• Presentation of these measures and metrics in strategy map diagrams
• Regular and robust collection of underlying data supporting the measures and metrics
• Presentation of the individual scorecards to each recipient in dashboard form
• Enablement of drill-through from cause to effect utilising the dashboard presentation technology

An application designed specifically to manage scorecards is by far the most sensible and cost-effective route to incorporating these measures into your business processes. Such applications are, of course, available from Hyperion and Oracle.

Failure to utilise the appropriate technology is often quoted as one of the biggest mistakes in scorecarding implementations – the associated costs of the time and effort required to do all that manual data collection and presentation may well be outweighed by the hidden cost of getting information too late to take action.

What Next?

Talk to ReportSource about your Scorecard Strategy Maps and engage us in the selection of the most approptiate technology for you.

Remember, scorecards are largely "10% technical and 90% analytical" - ReportSource can provide both to make up the full 100%.

Contact us to help you achieve success and line up "Individual Performance Management" with "Enterprise Performance Management".

Talk to us about your Scorecards needs......