Balanced Scorecard implementation of metrics

Specialized BSC software provides a wide range of capabilities for successful implementation and maintenance of the Balanced Scorecard.

Balanced Scorecard methodology

Balanced Scorecard (BSC), developed in 1992 by Robert Kaplan and David Norton as a new type of performance measurement system, has been proclaimed one of the 75 most influential ideas of the 20th century by Harvard Business Review. Bain & Co. 2005 survey indicated that 57 per cent of business organizations use Balanced Scorecard, which is an 18% increase since 1996 (The 2005 Management Tools Strategy Brief). 

“Balanced Scorecard approach” introduces a range of measures for evaluating organizational performance. However, in contrast with most traditional measurement systems, the majority of the Balanced Scorecard measures should be “non-financial”. As the government and corporate management becomes increasingly complicated, purely financial evaluations no longer suffice. Balanced Scorecard focuses the organization on the issues which the management decides are key to its success. Thus, Balanced Scorecard approach allows the company management to extend its business perspectives and provides opportunities for effective strategic planning. 

In fact, many non-financial measures are often used to overcome difficulties associated with the use of financial performance measures: for instance, changes in customer satisfaction and numbers of warranty claims often lead to future changes in revenues and profits (Gerald K. DeBusk, CPA, CMA, Ph.D., The Balanced Scorecard: A Useful Tool for Strategy Implementation and Improved Performance, June 24, 2005). Using Balanced Scorecard as an integrated management system, the organizational leadership can link its performance measurements to the company strategic planning objectives and value proposition.

Key Performance Indicators

The Balanced Scorecard provides a comprehensive set of objectives and performance measures that can be more easily analyzed, prioritized and communicated among the departments and employees of the organization. Typically, the performance measures are viewed from the following perspectives:

• Financial Perspective

• Customer Perspective

• Internal Processes Perspective

• Employee Learning and Growth Perspective

To measure the business performance, an organization needs to define its key performance indicators (KPIs). KPIs are cross-business enterprise standards that measure those vital few activities and processes that monitor the health of the organization (Kent Bauer, The Power of Metrics, DM Review Magazine, September 2004). For instance, KPIs in IT organizations are usually associated with the developer productivity, quality of delivered code, and ability to meet project deadlines and estimates.

BSC provides a multi-layered approach and comparatively large number of parameters that can be used in evaluating KPIs. In complex IT projects, Balanced Scorecard can be used as a framework for choosing a set of measures that address the operational excellence, user orientation, business value, and future orientation of an IT organization. Balanced Scorecard highlights the crossover measures that make the connection between IT activities and business success. These measures should illustrate actionable items and allow the organizational leadership to make better decisions. According to the 2004 Forrester survey, more than two-thirds of IT decision-makers said that metrics regarding project management and cost management were very valuable to their organizations, while over 40% also cited the value they receive from quality and productivity metrics (Liz Barnett, Metrics for Application Development, Forrester Research, May 2, 2005).

BSC metrics include both quantitative and qualitative factors. In application development, system response times or downtimes are typical examples of quantitative factors. Qualitative factors, such as users’ satisfaction with a particular service, are more difficult to measure and are usually based on the data collected from regular surveys of the employees.

Deployment of Balanced Scorecard

In the early 1990s, most organizations deployed paper-based management reporting solutions. However, paper-based measurement systems do not satisfy the needs of fast-paced businesses operating in competitive markets as they are, in general, too slow, cumbersome, labor intensive and unreliable.

Nowadays, organizations use various software solutions to support a Balanced Scorecard implementation. Most companies prefer standard spreadsheet document and presentation software applications (generally, MS Excel and MS PowerPoint). However, such applications lack scalability (desktop capacity is restricted), collaboration (the data is usually stored in individual spreadsheets on different machines) and require more time consuming maintenance (the data should be entered manually, which is typically a very slow and error-prone process). Besides, as the data is stored in individual flat files, it is more difficult to perform analysis across data in different spreadsheets (Andy Neely and Bernard Marr, Automating Your Scorecard: The Balanced Scorecard Software Report, October 2003).

Specialized BSC software

In order to facilitate the implementation of the Balanced Scorecard methodology, specific software may be used. Balanced Scorecard software is an efficient instrument for successful implementation and maintenance of the Balanced Scorecard. It is able to leverage the total potential of the BSC methodology by offering capabilities for creating a Balanced Scorecard model, defining and appraising key performance indicators, monitoring the status of individual initiatives and tasks, and communicating the business strategy across the departments of an organization and among the employees.

BSC software allows the company management to reduce “information overload” by providing data analysis and visual representation tools. It automatically collects relevant information from all organizational systems and data sources and facilitates building organizational metrics and defining key performance indicators. Typically, Balanced Scorecard software application tracks all necessary data for KPI management, including individual projects’ description, projects’ deadlines, departments and employees responsible for the implementation of day-to-day tasks, etc. Visual representation of KPIs highlights current trends and provides comparative information. Performance measures may be aligned with each strategic objective.

BSC software provides a “visual read-out” of the business model which makes it easier to understand and convey the main strategic objectives and goals to employees and partners. Personalized performance information may be delivered to specific business units and individuals. Besides, some BCS software applications contain graphical representation tools for monitoring the status of all initiatives and subordinate tasks with links to existing project management systems. Clear employee accountability allows the organizational leadership to fine tune operations and identify main performance issues.

BSC software has to match the needs of a specific organization. As Balanced Scorecard plays an important role in creating and implementing organizational strategy and objectives, it is essential that the functionality of the BSC software should fit the organizational culture, the skills as well as the existing IT infrastructure. Among other factors, an organization should consider the scope of the implementation and the number and type of potential Balanced Scorecard users.  

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