In this post, I discuss practical aspects of balanced scorecards briefly via simple examples.
Distinguishing among scorecard characteristics
A high-level goal is just that, and a good example from the first dimension of financial health might be “staying within budget.” This may translate into several specific objectives, one of which is “not spending more than $X on travel to conferences in Q3.” A measure can be “requests for conference trips per month”, while a possible metric can be “number of conference trips involving air travel and multi-night hotel stays taken by staff per month.” An initiative to contain costs may then involve looking for local conferences that present equivalent content, allowing travel only for staff actually presenting a paper, or exploring the possibility of attending more webinars.
Another high level goal, this time for the second dimension of customer satisfaction in a service organization, may be to increase customer trust, with the specific objective then being to become a trusted adviser to clients on certain highly technical matters. A corresponding measure can be “requests for consultation by the customer when issues of type X are being discussed” — for example, how often do physicians at a hospital consult the analytics team on an issue having to do with forecasting demand for their services — while an applicable metric can be the number of consultative meetings actually requested and attended by physicians. The targets, laid out for both the short and the long term, can be to increase the number of times one is consulted by 30% in the coming 6 months, and by 10% every year after that. Initiatives relative to these targets may be to not let the customer down on any issue being worked on, as well as to become more visible by marketing one’s services differently, in new venues, or more frequently. If addressing a software issue for a group of physicians, for example, not letting the customer down on current work can require looking more closely at status updates (ongoing communication) and testing prior to release, giving realistic estimates of completion dates, and eventually involving the physicians more closely in the requirements development process.
Now consider the dimension of internal operations. A reasonable objective can be to achieve sustainable change where improvements are concerned. Measures and metrics then need to tell us how many changes are in place and holding up some time after being implemented. We can set a target of “greater than 80% after 18 months”, with initiatives oriented to keeping in closer touch with the customer so as to reinforce buy-in and immediately address any doubts that may derail a budding change. A process may need to be set up to assess change in customer performance and thus know-how periodically after a change, and not just respond to sporadic questions from the more proactive among end users.
A second objective from internal operations may be managing customer expectations and communications well, with a corresponding measure being customer perception of service quality. A reasonable metric would then be the number of issues escalated by the customer beyond the planned levels, and a target would be to have no more than X issues escalated per month one year from now. Initiatives can look at putting in place alternatives to simply reacting to problems — as mentioned earlier in mistake-proofing, in Lean terms one needs to think FMEA (prevention), not RCA (correction.)
For learning and growth, a high level goal may be to improve the organization’s robustness when faced with experienced staff leaving or retiring. The objective becomes to increase the readiness of some staff to replace others. Measures and metrics may involve the number of requests for guidance raised by a potential replacement when put in the role of a more experienced person, with the target being a minimal number of requests — say, less than two per month — for assistance by the “subs” three years from the start of a cross-training initiative. Initiatives may involve cross-training staff, developing a succession plan for a number of positions, and putting in place measures to improve staff retention – including involving senior staff in an ongoing mentoring and “knowledge transfer” role towards more junior staff. Again, as discussed in mistake-proofing, making the operations environment more robust and embedding knowledge in it can be helpful when an organization is faced with the possibility of losing know-how.
Note that scorecards can be integrated with other tools, such as SWOT. It is easy to visualize a matrix with strengths, weaknesses, opportunities, and threats along one dimension, and the above areas (finance, customer satisfaction, operations, learning an growth) along the other. This gives a richer, combined view and potentially greater insight than is possible otherwise.
Once the dimensions of a corporate scorecard are established, fleshing out a balanced operational view is key, as is monitoring it closely with tools such as those described above.