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Measure And Manage What Matters To Your Organization

Another article posted here at the TeamStart library discusses Key Performance Indicators as being important tools to help you manage your business. The Balanced Scorecard was developed to fine tune the concept of KPI’s to ensure that in designing your set of measures, you consider all important activities.

According to its developers, Harvard professors Robert S. Kaplan and David P. Norton, traditional financial measurements must be “balanced” by measures of how well you serve your customers, how well you operate, and how well your organization can learn and adapt to change. By having four distinct perspectives (financial, customer, operations, and learning) you get a more balanced view of your organization.

The Balanced Scorecard is a conceptual framework that doesn't say what the specific measures should be. Implementation is up to the individual. The framework does provide guidance though, looking at four fundamental areas, and asking some basic questions in each area.

The key financial question is “In order to be successful, how should we appear to our shareholders?” This perspective captures the traditional financial measures such a profits, dividends, ROI, debt to equity etc, and other relevant financial measures.

The key customer question is “In order to be successful, how should we appear to our customers?” This perspective focuses on the ability of the organization to provide and effectively deliver quality goods and services, and overall customer satisfaction. Measures include customer satisfaction, growth and retention.

The key operations question is “To satisfy shareholders, customers and other stakeholders, what business processes should we excel at?” This perspective focuses on what exactly the business does that leads to financial success and satisfied customers. Measures include efficiency, speed, and quality problems.

The key learning question to ask is “In order to remain successful, how can we sustain our ability to adapt and improve?” This perspective focuses on the ability of employees, the organizational and its systems to recognize and adapt to change.

Each area is looked at and a set of objectives, measures, targets and initiatives is developed for each one. These objectives must tie into the corporate mission and allow the setting of specific goals and the development of strategies and specific plans. Objectives, goals, strategies and plans must be S.M.A.R.T, that is:
Specific Measurable Achievable Relevant Time bound.

My preference is to start with the time, and phrase the statements as “By 2018 or May, we will do\have “X” where “X” is a specific, relevant, achievable result. By design this becomes measurable.

Whatever measures you design, they should relate to scorecard activities and processes, they should tell you if you are regressing or improving, and acting on the underlying activities should effect a change in one of the four key areas. Targets relate to the specific measures, and represent where you’d like the measure to be. Again, they should be S.M.A.R.T. and the initiatives should take you there.

The following list of questions was developed by Paul Arveson, Founder and Trainer with the Balanced Scorecard Institute. Every strategic activity that you measure should be examined critically by asking the following questions:

Alignment questions: 
What is the strategic goal that is being addressed by this activity? 
What organizational mission does it relate to? 
Do we have a hypothesis as to how this initiative will eventually improve results (i.e. a strategy map)? 

Baseline questions: 
What is the existing level of performance? Do we know? 
Are we collecting this data and storing it somewhere? 
What are the statistical parameters of this data, e.g. how much random variation does it contain? 

Cost and risk questions: 
What is the existing cost of operation? 
How much will that increase when we do the initiative? 
What is the risk that this cost will be exceeded? 
Is the money being spent on this initiative the best use of the funds, or is there a better usage? 
What is the risk that the initiative will fail? 
Has this assessment been included in the planning? 

Customer and Stakeholder questions:
Have you listed all the communities of interest that have a stake in this initiative? 
Who are the kinds of customers/stakeholders who will benefit directly from this initiative? 
Who will benefit indirectly? 
Is the specified initiative the best way to increase satisfaction for all kinds of customers, or is there a better way? How will we know that the initiative benefits these customers? 

Metrics questions: 
What metrics will be used to define the benefit?
Are these the best metrics? How do we know that? 
How many metrics need to be tracked? 
If this is a large number (it usually is), what kind of system are you planning to use to track them? 
Are the metrics standardized, so they can be benchmarked against performance in other organizations?

Measurement Methodology questions: 
How will the metrics be measured? 
What methods will be used, and how frequently will data be collected? 
Is this the best way to do the measurements? 
How do we know that? 

Results questions: 
How can we demonstrate that this strategic initiative, and not something else, contributed to a change in results? How much of the change was probably random?

If you do this right, you can answer the key Balanced Scorecard questions properly, and you will measure and manage what matters to your organization.

© 2015 John B Voorpostel

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