At first glance, particularly if you’re a jaundiced techie like me, you may think the Balanced Scorecard is a concept wholly worthy of its acronym, BS. You might find a description of its function couched in those seemingly worthless terms like vision, focus, objective, empowerment and strategic alignment. All the kind of whibble senior management gets paid loads of money to warble, while everyone else has to work for a living.
Well yours truly suddenly found himself agreeing to do a TechNet evening on the Office Business Scorecards Accelerator. Why, because it comes under the umbrella of Business Intelligence and that comes under the umbrella of SQL Server
Fundamental to the Microsoft Business Intelligence platform is SQL Server Analysis Services, which provides both Data Mining and OLAP services. If you look at www.olapreport.com you’ll see Analysis Services is pretty much best of breed when all things are considered; well you only have to look at the way its grown to the number one best seller to see there must be some truth in this claim.
On its own Analysis Services isn’t very useful, firstly you need to create Analysis Services cubes and data mining models. This creation process is generally aided by using SQL’s relational database and ETL (extract transform and loading) tool DTS (Data Transformation Services). Then you need a Business Intelligence (BI) front end, either one of Microsoft’s own, or one of a growing number of third party products. If you’re unsure what Business Intelligence is don’t worry, for the moment its ‘information a business wants to use’ – I’ll give you a better definition in another blog.
The Office Business Scorecards Accelerator provides a very impressive BI front end by combining several technologies to form one powerful tool for use in the world of Corporate Performance Management (CPM) – a subset of BI. Naturally, having to do a presentation on the subject has made it necessary for me to research the subject of Balanced Scorecards. Having done this I have thrown away all my prejudice. I now believe that not only is the BS a great concept but it also represents a fantastic opportunity for the Microsoft application stack to provide an unparalleled solution. I don’t believe you will ever find a solution comprising more synergy between applications and I don’t believe any other vendor could ever rival it, without a comparable application stack to that of Microsoft’s.
In order to justify these emboldened claims lets first take a look, from 10,000 feet, at the BS concept and methodology. Bear in mind the fact that Kaplan and Norton published two books on the subject, The Balanced Scorecard in 1996 and The Strategy Focused Organisation in 2000, there’s a good chance I may throw a little of the baby out with the bath water.
The concept: developed over the last 14 years to help companies manage their increasingly complex and multi-faceted business environments. Since the 80s companies have had to face up to new challenges from globalisation, liberalisation of trade, technology innovation and greater demands on quality. Much of economy has changed from product-driven to service-driven, and much of the workforce changed from blue collar to knowledge worker. In 1998 over 75 % of the market value of the S&P 500 was captured in the intangible value of the knowledge worker, what must it be today and where is it measured?
Recently the internet has forced revolution on the way many businesses operate. It has lowered entry barriers to many markets, empowered customers with information and choice, created new distribution channels, spawned new industries and new activities in customer relationship management (CRM), supply chain integration, security and marketing. We are now in what some people call the Information Age.
These changes have required changes in the way companies measure their performance; the traditional profit and loss (P&L) account is outmoded, for instance it can’t measure customer/employee satisfaction, the ability of the workforce, or the value of R&D. A company might be doing poorly from a financial perspective because it’s been investing R&D to drive future performance. Conversely a company might be doing well on the P&L because it’ s not investing enough in training which could cause it harm in the future. The traditional financial measurements are backward looking, relying on lagging measures and provide no insight into future performance. In response to these stresses, Professor Robert Kaplan and Dr David Norton, aided by some solid research, shaped the concept of the Balanced Scorecard.
Another upshot from Kaplan and Norton’s research was the realisation that employees often failed to understand how their roles related to company strategy and its measures, leading to employees to feel disconnected and powerless to make an impact on the things being measured.
So the Balanced Scorecard was born, a method to measure and report performance in a way that balanced:
- Multiple perspectives.
- Both leading and lagging indicators.
- Inward-facing measures (e.g. productivity) and outward-facing measures (e.g. customer loyalty).
- Knowledge workers efforts and strategy
The BS is also a proven way to align an organisation with strategy and a way to communicate that strategy to the organisation, along with the associated measures and targets. Ultimately the BS is designed to deliver improved financial returns on employees, technology investments, business processes and customer relationships.
Dr Norton describes the balanced scorecard as:
“A Balanced Scorecard is a system of linked objectives, measures, targets and initiatives which collectively describe the strategy of an organisation and how the strategy can be achieved. It can take something as complicated and frequently nebulous as strategy and translate it into something that is specific and can be understood.”
So that’s what it is and what it does but what does it look like? The BS describes strategy in terms of perspectives; the classic BS uses four perspectives:
To succeed financially, how should we appear to our stakeholders?
To achieve our vision, how should we appear to our customers?
To satisfy our customers and shareholders, at what business processes must we excel?
Learning and Growth
To achieve our vision, how will we sustain our ability to change and improve?
Each perspective has an associated key question that describes the perspective; the answer to the question becomes the objective. Performance is measured in terms of progress towards the objective. Naturally there will be a causal relationship between these perspectives; good training can lead to good processes, can lead to good customer satisfaction, can lead to good financial results.
Naturally perspectives will change between different organisations – a charity will have different perspectives to a bank.
Objectives and Measures
Progress towards objectives is measured by one or more ‘measures’ (can it get any easier?). Like perspectives there should be causal relationships between objectives – this enables the ‘balancing’. What’s important is the objectives are measurable and the measures are:
- Relevant to the objective (and thus strategy)
- In context of a target
- In context of a time frame
- Capable of being trended
- Owned by a person or group with the power to impact the measure.
Initiatives belong to objectives and are designed to move the associated measure towards its target. They are managed like projects.
Strategy Maps, Strategic Themes and Matrices
Several tools are available to communicate the large amounts of information held within the balanced scorecard. Using these tools each level within the organisation has a digestible view of the scorecard pertinent to that level or role.
The strategy map shows the perspectives, objectives, measures and causal linkages. They facilitate cascading a BS through the organisation to the different levels. Each level has a map that can be viewed for alignment within the overall map.
To help make a strategy map more digestible in can be divided into strategic themes. A strategic theme is a grouping of similar objectives and their measures across perspectives. I’m looking at a diagram but it won’t copy into the blog.
The strategy matrix displays objectives, measures, targets, and initiatives in one table. The strategy matrix can point to areas where scorecard elements might be out of balance. For example, there may be a cluster of initiatives around one objective, while other objectives have no supporting initiatives. This can be useful when prioritizing spending for projects. Typically, the strategy matrix will reflect a strategic theme, so one matrix is prepared for each theme.
Strategic Theme: Smart, Profitable Expansion
Increase % of revenue from new stores
% Revenue from stores opened in last 3 years
> 30% year 1
> 50% year 3
Marketing to new target markets
Avg. # of days to breakeven
< 180 days year 1
< 130 days year 3
Increase sales efficiency
Revenue per FTE
> $ X year 1
> $ Y year 3
Self-service checkout pilot
Acquire new locations
Avg. # daily customers
> X in first 6 mos.,
> Y in first year,
> Z by year 3
Local marketing/PR campaigns
# of repeat customers
> X in first 6 mos.,
> Z by year 3
Customer loyalty program
Avg. $ customer purchase
> $ X year 1
> $ Y year 3
In-store promotions & classes
Fact-based site selection
Days lag between market selection and site acquisition
< 90 days year 1
< 70 days year 3
National brokerage contract
Streamline development process
Project duration, site acquisition to opening
< 365 days year 1
< 300 days year 3
Standardize design/build processes
% stores open on schedule
> 93% year 1
> 95% year 2
Web-based project management
Learning & Growth
Use business intelligence systems
% eligible employees trained
>90% year 1
>99% year 2
In-house system training
Integrated knowledge management
# paper forms used
< 200 year 1
< 100 year 2
< 5 year 3
Corporate digital nervous system
Example Strategy Matrix (for a strategic theme)
That’s the mechanics of the balanced scorecard. I’m not in the business of dealing with all the critical success factors and common pitfalls.
Automation is Essential
In order for the BS to work successfully it must deal with vast quantities of information, this is where the IT fits in and where in the past the BS has often failed.
A number of software companies have sought to develop an automated solution but their implementations have been slanted by the inherent orientation of the company.
Proprietary business intelligence (BI) products. Naturally, a BI software vendor will see the BSC as an extension of BI, and so will develop it as an add-on to their product line. While these packages can meet some of the analytical needs that support a balanced scorecard, they tend to have several limitations:
- They can lead an organization to focus on measures derived from available data rather than strategic objectives.
- They fail to communicate strategy
- They fail to manage non-numeric information.
- They often have per-seat license costs that may be appropriate for a smaller number of advanced analytical users but can be cost-prohibitive for the widespread deployment that is needed to drive effective strategy execution.
ERP-centric applications. The BS software is designed to interface with their transactional systems and emphasize use of the ERP system’s data. They may not be as well suited for integrating external data. Due to a heavy database orientation, they generally do not provide ways to manage the unstructured content that is key to educating and communicating with a large employee population. They also usually have per-user costs that can discourage broad use.
BSC-specific applications. The BSC-specific applications generally offer a good presentation layer, but may be limited in their ability to integrate multiple data sources and to enable automation of data collection and transformation.
These three classes of scorecard automation all have significant weaknesses in their ability to support the important processes of education; communication, collaboration, and knowledge sharing that ultimately determine the success or failure of a Balanced Scorecard initiative.
The Microsoft Balanced Scorecard Framework has been developed to overcome these shortcomings. The framework is not a packaged application; instead it integrates a variety of packaged applications and industry standards to automate a Balanced Scorecard solution.
Recognizing the wide-ranging challenges, impact, and needs of an organization implementing the BSC, the BSCF is founded on three underlying concepts:
1. The business and technology requirements for successful scorecard automation are too complex to be bundled into a single package.
2. It is necessary to leverage existing capabilities and technologies.
3. An open framework is essential. Organizations should be able to leverage existing systems and can add capabilities when and where needed.
Six facets describe the BSCF:
· Personalized Portal
o SharePoint Portal Server (SPS), IIS, Office Web Components (OWC)
· Best Practices
o MS Office
· Strategy and Metric Management
o SQL Server, Scorecard Builder and Scoreboard web parts (come with the BS accelerator), Visio
· Business Intelligence
o SQL Server RDBMS, SQL Server Analysis Services, DTS and OWC
· Actionable and Operational Tools
o Outlook, 3rd Party tools, SQL Server Reporting Services
· Knowledge Management
Wow – can’t type any more. I’m signing out here - looking forward to actually playing with the product!
You can find out more here:
and if you’re feeling dead keen here to learn about Kaplan and Norton’s try these:
The Balanced Scorecard - Measures That Drive Performance, Kaplan, Robert S., and Norton, David P.; Article, Harvard Business Review, January 1992.
Putting The Balanced Scorecard To Work, Kaplan, Robert S., and Norton, David P.;
Article, Harvard Business Review, September 1993.
Using the Balanced Scorecard as a Strategic Management System, Kaplan, Robert S., and Norton, David P.; Article, Harvard Business Review, January-February 1996.
The Balanced Scorecard: Translating Strategy into Action, Kaplan, Robert S., and Norton, David P.;
Having Trouble With Your Strategy? Then Map It, Kaplan, Robert S., and Norton, David
P.; Article, Harvard Business Review, September-October 2000.
Balanced Scorecard Collaborative home page
Balanced Scorecard Institute home page
Microsoft Business Intelligence site