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The Real Value of Strategy Map “Weighting” for Business

The issue of strategy map weighting has raised its ugly head again recently in some LinkedIn balanced scorecard and strategy forums.

And while the topic itself isn’t ugly, some of the exchanges have been. While some commentators have declared strategy map weighting “stupid”, I want to encourage practitioners not to throw an important concept out without further exploration and discussion because, in my experience, when applied in a specific way with a specific objective in mind, the idea of strategy map “weighting” can address a critical problem I see in 100% of the clients I work with – a lack of prioritization in organizational work effort, resource allocation, and operational and strategic decision-making.

First, let’s talk about the concept of weighting from a historical and technical perspective because it’s always good to know where we’ve been.

 

Weighting and the Balanced Scorecard

Back in the 1990’s when the balanced scorecard was new and we all thought that it was a performance measurement framework and activity, weighting your balanced scorecard indicators was very much in vogue. Balanced scorecard weighting was generally done in an effort to calculate an overall score for balanced scorecard performance. I even saw some executives being incented on increasing the overall balanced scorecard score for their organization over time because an improving score was considered evidence that the business unit’s overall performance capabilities were improving. At that time, we weren’t thinking about what “improvement” really meant (or whether increasing your overall balanced scorecard was even a good indicator of progress in the first place!). In the early days the concept of keeping score and improving on that score was seen as the primary goal of balanced scorecard utilization. Needless to say, the understanding and use of the balanced scorecard by many practitioners was formative and immature at that time!

In order to calculate an overall balanced scorecard score, everything needed to be given a weighting. The easiest approach was to begin by weighting the four balanced scorecard perspectives by allocating 100% over the various perspectives. From there the percentage given to a perspective was allocated amongst the indicators housed within the perspective (back in the 1990’s, it was rare to see strategic objectives included on a balanced scorecard). Weighting was often applied based on an unscientific assessment of the relative contribution of various perspectives and indicators to business performance results. Sometimes, thought was given to the concept of cause and effect in the balanced scorecard and greater weighting was applied in the “lower” perspectives and their associated indicators but let’s be honest - cause and effect was a new concept back then and we were still figuring out what the idea really meant in practice. Back then I saw weighting being applied to gap areas (i.e. opportunities for improvement), perspectives and indicators that had the highest external visibility, and a whole host of other, opinion-based/subjective reasons.

 

As our use of the balanced scorecard has matured, much has changed. The use of balanced scorecard “weighting” is rarely suggested these days because we generally use the balanced scorecard as a performance management tool that uses measures as indicators of organizational performance. That is, they are not diagnostic and, when approaching it as an internal strategy management tool, the balanced scorecard is best used as a facilitator of organizational analysis, dialogue, action, and change.

With this change in mindset, the concept of rolling up overall balanced scorecard performance into a score no longer makes much sense. Furthermore, the idea of weighting an indicator’s contribution to the color coding of the strategic objective it supports (assuming that you have progressed to including strategic objectives on your balanced scorecard) doesn’t add value to the role of the balanced scorecard as a performance management tool. In fact, in this context, balanced scorecard weighting can actually get in the way. That’s because weighting one indicator’s contribution significantly over another can actually mask areas of underperformance when looking at strategy execution capabilities and strategic progress.

As a result, I usually advise weighting all balanced scorecard indicators equally in relation to their contribution to their associated strategic objective unless there is fact-based evidence or a very clear business rationale to do otherwise. For example, 100% weighting is given in the case of just one indicator, 50% is given to each in the case of two indicators, etc. – you see what I mean. In my experience, there is rarely a clear rationale to approach weighting otherwise.

The only time that the balanced scorecard and/or balanced scorecard indicators may be weighted is when it is being used for the purpose of incentive compensation. There are lots of different factors that go into weighting a balanced scorecard for incentive compensation purposes – some of them related to areas of strategic focus and some of them related to the financials associated with the probability and size of the potential payout. Incentive compensation and indicator weighting is a complex topic best left to another discussion.

 

So, where are we now when it comes to balanced scorecard weighting? Generally, it really comes down to purpose. And, when the balanced scorecard is being used for the purposes of internal strategy management, weighting is generally not applicable because it just doesn’t make sense or add value.

 

Weighting and Strategy Maps

As you know, strategy maps were a later evolution in the balanced scorecard story. And while they were formally introduced to the world in 2001 and then again, more thoroughly, in 2004, many of us practitioners actually started creating our own strategy maps as early as the late 1990’s. Strategy maps were the missing link for many of us in building the bridge between strategy creation and execution and in maximizing the power of the balanced scorecard as a strategy management tool.  

By the time strategy maps came into greater use, our understanding of the relationship between the purpose of strategy management tools, cause and effect relationships, and weighting concepts had matured. As a result, strategy map weighting in the old sense was never a part of the package – it just wasn’t seen as relevant.

 

However, some practitioners did bring the concept of weighting back into play after we started using strategy maps with our clients but in a different way for a different reason and here’s why.

If you are an experienced practitioner, you know that, no matter how much you try to focus on “the vital few”, most initial strategy maps begin with upwards of 24 strategic objectives. While in theory we want to keep a company’s strategy map focused, reality is much messier. Many organizations just aren’t sure what their true value drivers are and/or organizational leaders can’t come to consensus on them. As a result, they are afraid to leave many business objectives off of their strategy map. And, no matter how much you want organizations to develop their strategy map based on hard evidence, most companies just don’t have the cause and effect data available to map out a sure-fire value chain (they need a draft strategy map and balanced scorecard to start testing this out!). As a result, most companies begin with a strategy map with a high number of strategic objectives.

When this happens, a strategy map can magnify a critical business problem – the failure to establish business priorities.

 

This is one of the biggest business problems today – the struggle to identify and focus on a few relevant strategic imperatives in the context of the bigger, long-term picture. Many organizations strive to put equal effort on all strategic objectives at the same time and end up achieving mediocre success in all areas. Unfortunately, a strategy map with 24 strategic objectives can cripple an organization that avoids making prioritizing decisions – no business can successfully work on 24 key strategic objectives simultaneously.

I personally saw many clients struggle with this challenge so, some years ago, I, and several of my colleagues, brought back the old idea of weighting and applied it to strategy mapping but in a new way – to identify subsets of strategic objectives having different levels of strategic priority over a period of time. Taking this approach has given strategy map users a way of identifying a few critical strategic imperatives in their business in a thoughtful and manageable way.

 

When I get my clients to do strategy map “weighting” or prioritization, I get them to ask this question: “Where should we put relatively greater work effort and priority over the next X months (usually 12 – 18 months)?” With this question in mind, participants apply weighting in a way that technically looks similar to the old balanced scorecard weighting approach – the key difference is in the question and purpose behind the weighting exercise.

Strategy map prioritization is an interesting exercise. There is almost always a 50/50 split in the approach participants take to applying their relative weightings. Half of the participants are guaranteed to leverage cause and effect concepts and select strategic objectives with the biggest performance gaps (current state versus vision state) lower down in the strategy map hierarchy. Others will select gap areas that represent high visibility outcomes (usually in the internal process, customer, and financial perspectives). The main thing the different approaches seem to have in common is that they focus on performance gap areas.

Talking about their different approaches to strategy map prioritization always allows members of an organization to really explore cause and effect concepts and come to consensus on (1) the way they want to think about the way their business works to produce results; and (2) where the most critical strategic gaps are in the business. The usual result is agreement on four to six strategic objectives that have clearly higher weighting or priority over the other strategic objectives on an organization’s strategy map over a defined period of time. And while all objectives will get some attention over the time period in question, members of the organization reach agreement that, when a decision must be made regarding work effort and the allocation of time and resources, the top four to six priorities will win out over the other objectives.

 

Strategy map prioritization is not a theoretical exercise – it’s a very practical one. Once they have weighted/prioritized their strategy map, my clients have used the weighting in many ways: to create multiple tiers of projects with tier 1 projects having the highest priority in budgeting and resource allocation; to evaluate and prioritize projects and work requests (i.e. work aligned with the top strategic objectives gets priority over other work); to evaluate the importance and impact of balanced scorecard results and to prioritize resulting corrective active plans; and in defining and weighting decision-making criteria. These are just a few examples.

The beauty of strategy map weightings is that they can be changed as required based on business conditions and learnings. Most importantly, this information provides guidance to managers and employees about prioritization decisions in their day to day work.

As my thinking about prioritization concepts has evolved, I have progressed on from having my clients weight the entire strategy map to having a fact-based discussion that asks each participant to identify the top three or four priority strategic objectives for the defined period of time. I have found that this more focused approach enables the same discussion and learning points and gets clients to the same result without the complexity of assigning weightings. And while there are a few downsides to this approach, the result is still the identification of relative work priorities for an organization within the context of all the strategic objectives on their strategy map and, most importantly, better, more successful strategy execution over the long term.

 

When considering weighting in the context of both the balanced scorecard and the strategy map it is important to avoid thinking about these concepts in purely black and white terms. However, over time, we have learned that some purposes and concepts just don’t go together in the case of some tools and we need to keep this information in mind as we move forward.

For example, the concept of strategy management and performance scoring are not a good match - they actually work at cross purposes. In contrast, the concept of strategy management and weighting for work prioritization appear to be in harmony because they share a common objective: excellence in strategy execution.

 

It is wiser, in my opinion, to think more deeply about the purpose of the tool in question and the purpose of a specific or associated activity. Taking this approach will set a better stage for the future evolution and practical application of strategy management tools in business.

 

Break Out of the Output Measurement Rut NOW!

I was recently teaching a class of Master’s students about the fundamentals of the balanced scorecard and the essentials of indicator selection when I was asked a great question: “Why do we seem to focus on output measures when we are measuring things in business?”

Before exploring this question, let’s take a quick look at the nature of, and options in, performance measurement.

 

Remember the good old days when we talked about leading and lagging indicators? We’ve come a long way since then and, while many people still talk about leading and lagging indicators, the thinking about this concept has changed a bit. Today, the concept of leading and lagging refers to the performance associated with a specific strategic objective itself rather than in relation to other strategic objectives on the strategy map or indicators on the balanced scorecard. As a result of this change in thinking, I actually prefer to characterize indicators as either predictors of future performance and results or indicators of past performance (often in the form of output and outcome measures).

The key is to remember that, for most strategic objectives on your strategy map, performance (and improvement) is generated through the execution of business processes. And while some strategic objectives may be achieved by completing strategic projects, most of the work that moves your business forward strategically over the long term is completed through the execution of business processes.

Looking at your business in these terms and linking business processes with strategic objectives allows you to make an interesting shift in thinking about alternatives for measurement when considering possible indicators for a strategic objective and your balanced scorecard.

Any business process owner you meet will tell you that there are actually four measurement opportunities when working with and managing business process performance: inputs, in-process, outputs, and outcomes.

Inputs are the things that trigger or start a business process moving. In-process measures are measures of things you observe while a business process is running. Outputs are the things produced immediately after a business process has been completed. And outcomes are the results achieved through, or impacts of, running a business process.

 

Here’s an example in action - let’s take a business process we can all relate to: Employee Recruitment

What triggers the recruitment process (input)? A vacancy or new position.

What do we see while the recruitment process is running (in-process)? Job postings, application and resume submissions, and candidate interviews.

What is the result of recruitment process (output)? A new, qualified employee in place in the open position quickly.

What is the impact of running the recruitment process (outcome)? Expanded organizational capability and capacity.

These are just some examples of the range of measurement opportunities/measures that could become indicators for a strategic objective such as “Attract Qualified Employees with Strategic Skill Sets”.

 

Generally, input and in-process measures translate into indicators that are predictive of future performance while outputs and outcomes are measures of completed activities and past performance. While you can’t change past results, predictive measures give you feedback early in a process and offer you the opportunity to take action, if indicated, to produce a better result by the time that process has finished running. 

It turns out that if you look at most of the measures used in business, they tend to be of the output variety. Some people believe that we tend to measure outcomes but that usually isn’t the case at all. This is largely because outcomes can be very difficult to measure. For example, measuring the outcome of employee development activities requires assessing the acquisition of knowledge and skills, and the application of these new learnings in the work place. This often involves measuring knowledge and application gap closure and assessing the value realized by the business through the acquisition and application of this new knowledge (something close to an ROI measure that can be notoriously difficult to measure when we are talking about the intangible aspects of the business). Measuring an outcome such as this, while critically important, can be difficult (often due to the complexity associated with the time lag and other factors that can come into play between the time of output and outcome measurement) and very costly.

While measuring outcomes is often considered the “gold standard” in results measurement, most organizations seem to settle for measuring outputs like % attendance at, or completion of, scheduled training programs (in the case of an employee training and development strategic objective) because they are readily available.

 

So, with all this in mind, let’s go back to our original question: “Why do we seem to focus on output measures when we are measuring things in business?”          

 

I believe that the primary reasons are because they are usually readily available, are easy to get, are recognized as evidence of the success of our business processes, and are generally accepted as the best measures of performance in business today. And while we would like to measure the impact of and/or the value of our business processes in moving our business forward, outcome measures can be difficult and expensive to get.

 

In a nutshell, output measures are usually cheap and easy.

 

Now, don’t get me wrong, if an existing output measure is the best indicator to select based on the definition of a strategic objective, by all means, use it on your balanced scorecard. However, be sure to remember that a balanced scorecard is not balanced unless it includes some combination of predictive indicators and indicators of past performance. This imperative often means exploring and adding some predictive input and in-process measures to your balanced scorecard indicator set.

 

I think that the real reason why we tend to focus on output indictors is because they are our best, most direct evidence of what has been produced by a process. That is, we ran XYZ process and output A was the result. Often, it feels like a huge leap of faith to measure an input or in-process measure in lieu of an output measure. Many people wonder “How can we be sure that this input measure is a good predictor of a future result (an output or outcome)?” I understand that concern because the answer is you don’t really know for sure without some experience and lots of data – data that most organizations just don’t have the time and resources to collect. And, without those causal relationships quantified, many organizations are afraid to replace output indicators with the predictive ones.

A practical way of adopting predictive indicators in your balanced scorecard is to create an index that includes a predictive indicator and an indicator of past performance that are both relevant to the strategic objective in question. Taking this approach allows you to (1) see whether there really is a relationship between your selected indicators (sometimes you think that there will be a relationship and it turns out that this just isn’t the case), and (2) build an understanding of the nature and strength of that relationship. In the best case scenarios, taking action on an underperforming predictive indicator and then seeing that you were able to prevent significant underperformance on the associated indicator of past performance can give you good insight into the practical value of a selected predictive indicator. Once you have developed this confidence, choosing to include predictive indicators, in lieu of output indicators, on your balanced scorecard doesn’t feel like such a gamble.

 

Output indicators are often the default and/or preferred type of measure for many balanced scorecards. Unfortunately, a focus on output measures alone severely limits your ability to leverage the balanced scorecard the way it was meant to be leveraged.

Is your balanced scorecard currently populated with output indicators? If it is, you aren’t alone.

Take the time to restore the “balance” in your balanced scorecard and increase its power. Simply look at the business processes that support each strategic objective on your strategy map, identify candidate input and in-process measures, and consider replacing some output indicators with predictive ones. Making this move will allow your balanced scorecard indicator set to help you produce even better business performance results and move your strategy forward more quickly and effectively.

 

The Essentials of a Great Balanced Scorecard Report

I frequently get asked for examples of really effective balanced scorecard reports. It seems that many people are unsatisfied with their initial attempts at balanced scorecard reporting. The usual complaints I hear about BSC reports include: “it doesn’t help us focus on what’s important”; “there’s still too much information in the report”; “it’s not easy to read and/or understand”; “it doesn’t include the “right” information”; and “it’s just plain ugly to look at”.

While there are lots of other areas of dissatisfaction, these are the main ones.

 

The key to creating a better BSC report is to rethink the idea of a results report all together. It is essential to start with the purpose of a BSC report first and then, with this in mind, create a new “style” of report that fits optimally with that purpose.

The biggest mistake I think people make when designing their BSC report is to assume that the format of the typical financial or MIS report will work for BSC results reporting. In almost all cases, if you think about the objective of the typical financial report versus a BSC report, you will not come up with the same answer. This should tell you something about the need to design a better BSC report.

 

So let’s take a closer look at the various purposes of the balanced scorecard and talk about the elements of a BSC report that align with/support them.

Measure and assess strategic objective health in “real time” – supporting BSC report elements: a color-coded strategy map; access to strategic objective definitions and “owner” names (i.e. accountability information); color-coded results data; results data versus performance targets (i.e. graphs, tables, trend charts, etc.); results commentary; and historical performance results data

 

Actively manage and improve the execution of your strategic objectives – supporting BSC report elements: a color-coded strategy map; results commentary including root cause analysis and corrective action plans; active links to root cause operational information; active links to critical business documents such as project charters and progress reports and process management information; active links to accountability information (i.e. who in your organization has accountability for various aligned strategic and operational elements of the business); and active links to internal discussion forums (including information on and ideas for improvement)

 

Evaluate and manage the progress and effectiveness of your business strategy – supporting BSC report elements: a color-coded strategy map; results data versus performance targets; results commentary; active links to internal discussion forums; active links to key internal information and external environment/market/industry and customer/stakeholder information and feedback, and information sites 

 

A catalyst for discovery, learning, problem solving, and the refinement of both operations and strategy on an ongoing basis/adjust and refine your business strategy as required – supporting BSC report elements: a color-coded strategy map; results commentary including root cause analysis and corrective action plans; active links to root cause operational information; and active links to discussion forums and relevant documents

 

A communication vehicle – What are key the elements of great communications? They are focused on the information needs of the audience so they give the audience the information they need, when they need it, in the format they need/want it in. They feature clear and focused messages. And, they are easy to understand. A great BSC report keeps all of these elements in mind by being uncluttered and easy to read/navigate and understand, and by presenting information to unique users in a way that works for them.

 

So – a great BSC report contains certain information elements presented in a logical order that is designed to help focus the viewer on layers of information that progress from the high level to greater amounts of detail. This approach helps viewers focus their attention more easily. However, a great BSC report must also be flexible to individual user preferences.

 

Here are some of the “must have” elements for a BSC report to be GREAT in my mind:

A “color-coded”* strategy map – I feel strongly that your BSC report should start here. Your balanced scorecard is all about your business strategy and measuring and managing strategic objective health - a color-coded strategy map gives you an overview of how each strategic objective is doing based on the performance of the associated balanced scorecard indicators. Further review of balanced scorecard results should proceed from there.

Some companies like to guide viewers from their strategy map and have them progress to the next level of detail/information following certain criteria. For example, they might look at all strategic objectives performing in the red and/or yellow zones; or they might look at all priority strategic objectives performing in the red and/or yellow zones; etc. Whatever criteria your organization chooses to use, your BSC report should guide your viewer to the next level of information and detail  in a focused way.

* just a reminder – a certain percentage of your viewer population is color blind. Rather than color-code performance results (strategic objectives and BSC indicators), consider using icons instead of colors to give viewers a quick way of assessing whether performance is under, at, or above target.

 

BSC indicators and their strategic objective – When your viewer looks at a BSC indicator, they should always be able to see the context for that indicator or where it fits in relation to the business strategy. Including strategic objectives in your balanced scorecard hierarchy keeps that relationship front and center.

 

Strategic objective and BSC indicator definitions – It is easier for viewers to make sense of what they are looking at, as well as the implications of certain performance results, when they can access strategic objective and indicator definitions. Make them easily accessible to your viewer.

 

Color-coded BSC indicator results – Before your viewer even sees results data, let them see color (or a performance icon). Color gives your viewer important information quickly and allows them to decide whether they want to go to the next level of detail of indicator performance results to investigate further.

 

BSC indicator performance data – Performance results should always include an actual result and a comparator. If you are using multiple comparators, your BSC report should allow viewers to see actual results versus their preferred comparator with just a click. Performance results should be available either by measurement period or in a year to date format – viewers should be able to toggle between views. Last but not least, results data should be available in your viewer’s preferred display style – for example, graphs, trend charts, table, etc. Graphical presentation should always be your starting point because it’s just easier for your viewer to assess performance quickly when there’s a picture involved. More detail oriented viewers can switch to a table presentation, for example, if they prefer.

 

Embed results commentary and other relevant information with indicator results data – Your BSC is meant to convey strategic information. “Information” is a combination of data, analysis and commentary, and other relevant documents. It is critical for learning and improvement that your BSC report present your viewers with a combination of data, commentary, and other relevant information, where available, for each indicator.

 

Other – A great BSC report is dynamic, is easily customizable to viewer preferences and needs, and “remembers” a viewer’s unique preferences from report to report.

 

By now, I’m sure that you are wondering how the typical BSC report can do this. The answer is that, in my opinion, it can’t.

 

The way we traditionally think of a “report” just isn’t conducive to great balanced scorecard reporting primarily because it’s static. And while you might be able include some of the elements outlined above in a traditional BSC report, you will never be able to give your viewer the ability to interact with the traditional BSC report in a way that is customized and meaningful to them (not without a great deal of time and effort that is). This is a critical limitation because having this ability is critical for really engaging your viewers/employees and stakeholders with your business strategy.

 

In fact, a great BSC “report” isn’t a report at all! A great BSC report is a dynamic interface on, for example, a computer, tablet, or mobile device that provides viewers with access to a defined suite of important strategic information that is presented in a way that helps the viewer navigate from high level information to detailed information while ALSO allowing them to have a customized experience with that strategic information.

 

However, your balanced scorecard report isn’t just a tool for displaying business performance results – it’s ultimately a vehicle for engaging your viewers/employees and stakeholders with your business strategy and getting them involved in the strategic conversation. Most importantly, a great BSC report facilitates the best use of the balanced scorecard within your organization and allows you take full advantage of the power of the balanced scorecard.

 

Organization’s that are truly committed to getting the most out of their balanced scorecard must rethink their approach to balanced scorecard reporting and make the transition to a dynamic type of “report” (like the ones provided by BSC software applications). To make the most impact, this new type of report must be accessible by all users and give individual viewers the option to quickly and easily customize their view of strategic information so that they can interact with it on their own terms and then participate in the process of shaping and executing your business strategy, on an ongoing basis.   

 

Don’t Bet on Strategy Maps and the Balanced Scorecard ALONE Translating into a Prosperous 2012

Are visions of strategy maps, balanced scorecards, and/or any other organizational performance management tool dancing in your head as you plan for a better business year in 2012? While adopting any combination of these tools will probably result in some improvements in operations and business results over the next year, you won’t achieve the transformational organizational shift that translates into sustained levels of exceptional business performance if implementing these tools alone is all that you do.

In fact, at the risk of sounding extremely Grinch-y as we close out 2011, you are actually better off not even starting down the strategy map-balanced scorecard adoption path if you aren’t prepared to go all the way with your commitment. That is, to achieve business success in 2012 and beyond, you need to implement the “new way to manage” - it's required if you want to unleash the full potential of all those business performance management tools we seem to grab onto in our quest to achieve the next level of business performance.

Let’s look at the key elements associated with this “new way" to manage.

 

Engage in Open Communication

Successful organizations are open and communicate their business strategy and objectives clearly, concisely, and completely with all of the internal and external stakeholders including employees at all levels of the organization, their customers, and their business partners. To do this, they get to know the communication preferences of each audience and use numerous communication vehicles to get their messages out. In addition, they focus on building mechanisms that encourage meaningful, two-way communication and dialogue, not one-sided messaging.

This level of communication doesn’t happen by accident – it takes planning, adequate support and resourcing, appropriate funding, and a dedication to focused execution and improvement. If communication in your organization is haphazard or sub-optimized, a new business performance management tool will most likely get lost in your organization. Few people will know it exists, limiting the impact it can have on the performance of your organization.        

 

 

Change the Conversation

What do conversations look like in your organization? What do they focus on?

If you are like most, they revolve around operational matters and fighting today’s crisis. Discussion and decisions are likely top down in nature with senior management determining direction, strategies, and tactics with the expectation that employees will execute them as directed. When you take the time to look at business results, you might find that you and your colleagues debate the accuracy of data, argue about the interpretation of the results, and speculate on whether an unexpected result is a one time occurrence or a trend. If this sounds like your organization, you are not alone.

While successful organizations do deal with operational activities and decisions, and firefighting, they also make sure that they spend adequate time exploring and discussing strategic matters on an ongoing basis. They engage employees at all levels of the organization in an ongoing dialogue about what the organization should be, how it should get there, how it’s doing/performing, and what should be done to improve. They create multiple venues and opportunities for these conversations to take place including business results review sessions where the root cause drivers of performance results and the impact of current performance on the future success of the organization are discussed, and evidence-based corrective action plans are created and debated.

The introduction of a new business performance management tool such as the strategy map or the balanced scorecard offers an organization the opportunity to engage with new business information and stimulate new kinds of conversations across the company. Organizations that introduce these tools without changing the nature of their conversations never reap the full potential the tools were meant to deliver.     

 

 

Set Clear Business Priorities

Success in business is as much about deciding what NOT to do as it is about deciding what to do. This is critical when defining direction and business strategy. And it is equally critical when making business decisions about relative work efforts, resource allocation, and dealing with day to day work demands. Successful organizations determine a small set of strategic priorities and then leverage their business performance management tools to communicate, test and validate, and revise their business priorities. They also use these tools to give employees at all levels of the organization the information they need to make day to day business decisions that align with organizational strategy and strategic priorities.   

If your organization doesn't do a good job today at prioritizing work and decisions, and does not use the introduction of business performance management tools as an opportunity to develop this capability, you will find that implementing any tool puts an additional and unwelcome strain on the overall capacity of your organization. Rather than seeing your business performance management tools as a help, you run the risk that employees will become resentful of them because (1) the tools have added additional strategic considerations to the overall work of the organization; and (2) utilizing the new tools has created additional administrative work for them.

When introducing business performance management tools such as strategy maps and the balanced scorecard, be sure to also take the opportunity to use them to identify and communicate a focused set of business priorities for your organization. These tools were designed to help you do this – wise adopters take advantage of this opportunity to focus the work of their entire workforce and organization.     

 

 

Build New Leadership Capabilities

Leveraging business performance management tools to get the most out of them and make the new way of managing “the way we work” at all levels of an organization is a new skill for many leaders, managers, supervisors, and employees. Managing in the new way often requires a complete change in behaviour from the previous operating and managing style and generally demands new levels of accountability from leaders and employees. Do not assume that simply introducing the strategy map or rolling out cascading balanced scorecards will automatically change the way managers lead and the types of discussions they have with their team members.

Successful organizations make their new expectations for manager and employee behaviour explicit and will then provide everyone with the education, training, and ongoing supports they need to live up to new expectations. In addition, they will offer everyone incentives to manage and work in the new way, including building behavioural and performance expectations into personal goal plans, and basing compensation on success in adopting these new skills and behaviours and building advanced levels of capability in this regard.

Don’t expect the introduction of new business performance management tools to magically transform the way your organization works. To achieve the changes outlined above and make them "the way we work", you must support tool implementation with a formalized programme that builds the appropriate skills and capabilities in every employee in your organization.

    

 

Many organizations implement strategy maps and the balanced scorecard in the hopes that these business performance management tools will provide them with the silver bullet they need to achieve improved business results over the long term. Unfortunately, the landscape is littered with stories about companies that abandoned their selected tool because it failed to perform to expectations and/or deliver the desired business results. In the majority of cases, when you dig deeper into the failure, you discover that the adopting organization simply rolled out the tool while managing in the same old way. Essentially, the sub-optimization of the tool was a result of failing to support it with the behavioural, cultural, and systemic changes required to receive the maximum benefits of business performance management tool utilization.

I think that there is one critical reason why organizations fail to go all the way when implementing a business performance management tool. While some just honestly don’t realize that the new way to manage is a key element of success, I believe that many organizations and business leaders are searching for a quick fix to their problems. Implementing a tool requires action, can be done relatively quickly, and the result is tangible – you can see a new strategy map or balanced scorecard when it is in place and it feels like progress. Culture, behaviour, and organizational systems are more intangible in nature. They can be difficult to change and often leaders are worried that it will take a long time to effect the change (particularly if they are unsure about how to do it). And when the change does happen, you often can’t see it easily (though there are some great assessment tools out there that can help you measure that the change is indeed happening).

Bottom line? Implementing a new business performance management tool is sexy while effecting the required cultural and behavioural change feels like work. However, without these fundamental changes, the business performance management tool you choose to implement will never live up to its potential for you and your organization.

 

Looking for better business performance in 2012?

Go ahead and adopt the business performance management tools that interest and inspire you the most - but also make a commitment to implement the new way to manage across your organization. The maximization of your return on your investment in business performance management and the achievement of sustained performance success in 2012 and beyond are dependent on it.

  

Does Your Balanced Scorecard Need Surgery?

From time to time I get a call from a business leader who has been using the balanced scorecard in their organization but is underwhelmed with what it is doing for the company. In most of these situations, when I dig deeper into the problem, I quickly discover that, instead of a trim and focused set of indicators, the balanced scorecard in question is an unwieldy report containing 50+ indicators of all description that aren’t clearly linked to the business strategy.

 

A balanced scorecard that is weighed down by too many indicators is one of the leading problems organizations have with their scorecards today. The problem with these types of balanced scorecards is that they are very difficult to manage and use. They require a small army of people to populate the data and produce the results reports, making the balanced scorecard process an extra, rather than integral, part of doing business. More importantly, instead of providing business leaders with a quick snapshot of what is going on in the business strategically and facilitating evidence-based decision making, these balanced scorecards become just another huge report that is difficult to wade through and gain insights from.

 

A great balanced scorecard is a focused tool that lives up to its defined purpose – whether it’s to provide business leaders with the insights they for internal strategy management, to demonstrate compliance with external standards or regulations, or to help assess the contribution of employees in relation to the business strategy. Ideally, regardless of its purpose, a balanced scorecard should include 16 to 36 indicators with a good guideline being 1 or 2 indicators for each of the strategic objectives on your strategy map. While achieving this goal can be a challenge, it can be done with focus and an attention to what really matters for business success.

 

When a balanced scorecard has too many indicators it needs surgery – it’s as simple as that. However, the key to making the surgery easier is to identify and solve the root cause problem(s) driving indicator proliferation before the cutting starts. In my experience, there are four primary root cause problems that can, alone or in combination with the other problems, drive an overpopulated balanced scorecard. These include: (1) too many strategic objectives on the strategy map; (2) a lack of focus on one primary purpose for balanced scorecard use in the organization; (3) a failure to remember that the balanced scorecard is not meant to be a diagnostic tool; and (4) a lack of, or unclear, strategic objective definitions.

 

Let’s take a closer look at each of these problems and explore how to solve them.

 

1. Too many strategic objectives on the strategy map

A good balanced scorecard must be built on your strategy map. And while it is possible to create a balanced scorecard from a traditional strategic plan, it is far easier, and you reliably get a better product, when you leverage your strategy map to create your balanced scorecard indicator set. Ideally, your strategy map should include 4 to 6 objectives per strategy map perspective. Assuming that you are using the four traditional strategy map perspectives, this translates into 16 to 24 strategic objectives TOTAL on your strategy map. And, I would even say that 24 strategic objectives are too many for most organizations. Ideally, I try to help my clients keep the total number in the neighborhood of 18.

You see, the problem is that unless you can ruthlessly select just 1 indicator for each strategic objective on your strategy map, a high number of strategic objectives will quickly translate into an even higher number of balanced scorecard indicators. The key to controlling the number of strategic objectives on your strategy map is to following the guidelines provided in my last blog post: “Walking the Simplicity-Complexity Tightrope in Strategy Mapping” (click here to read).

Tip to make balanced scorecard surgery easy: Removing excess strategic objectives from your strategy map will naturally translate into the removal of the associated indicators from your balanced scorecard.  

 

2. A lack of focus on one primary purpose for balanced scorecard use in your organization

Did you realize that there are actually many different ways of using the balanced scorecard? The traditional way is to use the results to assist with internal strategy management, however, balanced scorecard indicator sets are also used for external reporting to shareholders, external stakeholders, accreditors, and external regulators. Balanced scorecard results can also be used to provide the basis of employee compensation and bonusing schemes and payouts. If you look closely at the profiles of the indicator sets used for these various purposes, you’ll notice that they are different. For example, scorecards used for internal strategy management will usually have the most diversity in indicators – a combination of outcome and process and qualitative and quantitative indicators. On the other hand, external reporting scorecards will generally be focused on outcome indicators. Indicators used for compensation are almost always objective and quantitative in nature (rather than subjective and qualitative) – making payout decisions more sound and defensible.

Problems start arising when you try to create your balanced scorecard with multiple purposes in mind. In these situations it is often necessary to include multiple indicators per objective on the same scorecard to accommodate to the different indicator profile requirements. In my experience, the resulting balanced scorecard doesn’t do a good job at serving any of the various purposes it was designed to fill - primarily due to lack of focus and measurement clarity.

The best advice is to build your balanced scorecard with one purpose in mind. This will make it easier to select a small number of indicators that are really relevant to your strategic objectives. Over time, and as your organization’s balanced scorecard capabilities grow, you may be able to create a streamlined, multi-purpose balanced scorecard if required. However, achieving this goal usually remains challenging.     

Tip to make balanced scorecard surgery easy: Determine the primary purpose of your balanced scorecard and then eliminate extra indicators that may have been selected to support an alternate purpose for balanced scorecard utilization.

 

3. A failure to remember that the balanced scorecard is not meant to be a diagnostic tool

A good balanced scorecard provides an organization with a view of the progress of the business strategy and the impact of strategy management efforts on strategy execution success. To do this, a balanced scorecard must include representative indicators that will register change, allowing the scorecard to play its role as an early warning/alert system when performance in key strategic areas is below expectations.

It is important to realize that a good balanced scorecard is not a diagnostic tool. That is, it is not meant to alert business leaders to problems AND provide data on the root cause drivers of those problems. A tool designed to play both of these roles would clearly require a very large measure set. Ideally, a balanced scorecard is composed of indicators that are sensitive to change and when they register a change, the organization goes to various other data sources to complete an analysis to identify the root cause(s) of the problem.  

Many organizations don’t realize, or forget, that the balanced scorecard is not meant to be a diagnostic tool and, as a result, they turn their balanced scorecard into a comprehensive measure set. By limiting the balanced scorecard to its real purpose, it becomes easier to keep the indicator set focused.

Tip to make balanced scorecard surgery easy: Look for diagnostic operational measures on your balanced scorecard and remove them. Limit your scorecard to indicators of the performance of your strategic objectives (i.e. ones that will effectively alert you to trouble spots) and be satisfied with going to other data sources for performance analysis information when required.

 

4. A lack of, or unclear, strategic objective definitions

Balanced scorecard indicators are meant to be representative of the strategic objectives on your strategy map. To select a focused set of indicators, it is critical to have a clear understanding of what is intended by each strategic objective. This is why strategic objective definitions, outlining what is, and isn’t, included under the strategic objective, are critical – they support strategy execution success and provide the key to making informed balanced scorecard indicator choices. Without these definitions there is little basis for indicator selection decisions usually resulting in an unfocused collection of indicators for each strategic objective.

Ideally, clear strategic objective definitions guide the balanced scorecard indicator selection process. As candidate indicators are developed, the final decisions can be made based on their relevance in relation to each strategic objective definition. A well written strategic objective definition is critical in the process of selecting the one or two best indicators to represent that strategic objective.  

Tip to make balanced scorecard surgery easy: Do each of the strategic objectives on your have definitions? If not, take the time to create them. Once they are in place, take the list of indicators for each strategic objective and test them against the definitions. Select the one or two indicators that are the most representative of each strategic objective. Discard the rest from your current balanced scorecard and/or save them for future consideration.

 

Does your balanced scorecard include too many indicators? If so, it’s time to trim. However, rather than jumping in with the cutting shears, the best approach is to first determine which of the four typical root cause problems for indicator proliferation you are facing and then take steps to eliminate them. This will usually lead to obvious and easy indicator cutting decisions - resulting in a lean and focused balanced scorecard that is easy to manage and use, and more than lives up to its value as a strategy management tool.

 

Is the Balanced Scorecard Out of Date?

This is great question posed to my colleague Brett Knowles at a thought leaders panel I recently participated on (here’s the link to the webinar ). Since this is such an important question and I didn’t have an opportunity to provide my perspective on it, I thought I would now.

First, a little background.

As you may know, the balanced scorecard (BSC) was introduced to the world in the mid 1990’s by Dr.’s Kaplan and Norton as an alternate approach to measuring the performance of organizations. Historically, the focus in business measurement had been on measures of financial performance. Kaplan and Norton forwarded the notion that because these were measures of past performance and were really financial outcome metrics, they provided little insight into how the results were achieved (a critical gap in information when performance results are below target) and were not particularly useful in making decisions moving forward. In response to these flaws, Kaplan and Norton introduced the balanced scorecard, a system of measurement that included both financial AND non-financial metrics (i.e. the drivers of those financial results distributed over three primary supporting perspectives – customer, internal process, and learning & growth – arranged in a logical hierarchy).

At the time, the balanced scorecard was recognized as a revolutionary and transformative approach to business management. However, in my experience, most of the organizations I have seen adopting the balanced scorecard have tended to use the balanced scorecard as a reporting tool with a balanced set of measures (that may or may not relate to strategic objectives) and less as a business performance/strategy management tool and approach. More on this later.

 

Over time, the use of the balanced scorecard has waxed and waned. There were many early adopters who realized some success with the balanced scorecard. In the recent report “Management Tools and Trends 2011” by Bain & Co. (read the report here), survey results showed that while one half of business leaders in emerging market companies are using the BSC to tell them whether their business strategy is delivering results, only about one-third of executives in established market companies are using it. In addition, three times as many emerging market executives are using the BSC to improve their decision making as compared to business leaders in existing markets. Suggesting perhaps that the balanced scorecard has run its course in mature markets while its use is just being explored in the emerging market climate.

  

While the Bain & Co. report shows that that the balanced scorecard ranked 6^th on a list of the top ten management tools in 2010, this is the same ranking reported in 2008 – a stagnating result. It is notable that the BSC didn’t even make the list prior to 2008. Do these results suggest that the balanced scorecard was never that big a hit as a business management tool in the c-suite of businesses in the developed world in the first place and that the current appearance on the list is courtesy of the interest in the BSC in emerging market companies? I’m not sure but would really like to see that research study.

 

A closer look at a more detailed graph of the historical use of the balanced scorecard provided by Bain & Co. (see it here) tells an interesting story.

This graph shows that, with these respondents, the balanced scorecard came out of the chute strongly in 1996 with a 38% utilization rate. After some mixed results relating to use, there was a strong upswing through the late 1990’s and early 2000’s that peaked somewhere around 2006/08 at approximately 70%. By 2010, this utilization rate had dropped sharply among respondents, settling in at about 48% - roughly a 10% increase over the initial 1996 utilization rate. It will be interesting to see whether this utilization rate holds at this level moving forward.

It is also interesting to note that from 1996 to 2010, the satisfaction rate with the balanced scorecard as a management tool has remained fairly constant hovering around a score of 3.7 out of 5.0. Ironically, peak utilization of the balanced scorecard amongst respondents coincided with a slight dip in satisfaction levels.

 

So, what caused the big drop in balanced scorecard utilization around 2008? Since we know that satisfaction with the balanced scorecard as a business tool likely wasn’t the driving factor amongst survey respondents, the most obvious culprit, in my opinion, is the economic crash. Basically, it looks like many respondents abandoned the balanced scorecard when business times got rough.

Despite the fact that this study may not be providing us with the most robust data, I think that it may be an interesting indicator of BSC utilization so let’s look at this a little closer. Let’s consider that perhaps the question isn’t just “is the balanced scorecard outdated” – maybe it’s, is the balanced scorecard an outdated tool in volatile, unpredictable, and tough economic times?

 

What is needed to succeed in the business conditions we are facing today? The short list of key requirements includes the ability to:

1. Know when business performance is heading in the wrong direction as early as possible and have the business intelligence required to change course, eliminate performance gaps/root cause problems in a surgical way, and produce improved results in a short period of time;

2. Have quick access to accurate and timely data that facilitates meaningful and consistent decision-making across the organization;

3. Leverage key external and internal insights and information efficiently and demonstrate agility (the ability to modify the business strategy and align tactics quickly) in the face of changing business conditions (including customer and market needs);

4. Access cause and effect data that can help make targeted investments that are guaranteed to produce specific outcomes and results;    

5. Optimize operational efficiency and increase the capacity of existing human resources by eliminating duplication of effort and streamlining work activities; and

6. Develop the capacity to produce better business performance results on a consistent and sustained basis.

  

Even though these business imperatives actually apply whether we are in good times or in bad, I think the need to be really good at all of them is acutely magnified in a business environment like the one we are in today. Having a gap in just one critical area can mean the difference between business success and failure so when the pressure is on, all of a sudden businesses need to focus on and excel at the 6 items above.

 

So, how/can the balanced scorecard help business leaders master each of these 6 business requirements?

If you take the limited view of the BSC, often adopted by BSC users, that the balanced scorecard is simply a new type of report that contains a balanced set of financial and non-financial measures, then I would say that the balanced scorecard might only be able to help you out with items 1 and 2. Given this, it’s obvious why executives might turn away from the BSC in tough, demanding business conditions - they are looking for a more comprehensive, all in one solution.

If you view the balanced scorecard strictly as a business reporting vehicle then I would agree that it is an outdated tool, particularly in volatile, unpredictable, and tough economic times.

However, the real power of the balanced scorecard is discovered when you treat it as a strategy-focused business management system. This system includes (1) your strategy map, where a focused set of strategic objectives are placed over four perspectives in order to clarify the strategy and the cause and effect relationships that exist among them, (2) the core business processes and strategic initiatives that drive or support the actual change required by the strategic objectives, (3) the associated accountability structure, (4) the set of measures/indicators that directly reflect or represent the strategy/strategic objectives and the associated root cause commentary, AND (5) regular discussion forums where business performance and strategic information is exchanged and decisions are made.

If you look at and use the balanced scorecard in this new way, the BSC is well positioned to help businesses address the 6 key business requirements outlined above, making it a very relevant business tool in any business environment but particularly in the one business leaders are facing today.

 

Further study is required to really understand why the balanced scorecard appears to be losing favor with executives in mature markets versus emerging ones. I suspect that it has to do with both the definition and application of the balanced scorecard AND the nature of the current business environment.

So, is the balanced scorecard out of date, particularly in today’s business climate?

I say definitely not if it is used the way it was truly meant to be used – as a strategy and business management system. 

Are you and your team tempted to abandon the balanced scorecard in your search for a tool/tools that will be more effective in tough times? The better suggestion is to ramp up and expand your use of your balanced scorecard so that it can deliver the benefits it was designed to deliver!

 

Is Measurement Really to Blame for Innovation Failures?

Recently, I have seen some suggestions that measurement, and more specifically, the choice of measures used, is a prime driver of innovation failure in organizations. While I agree that innovation can be problematic in organizations, I have to wonder whether when it happens it’s actually a strategy problem (maybe) or a management problem (more likely) dressed up as a measurement problem.

I understand – a lot of people REALLY dislike measurement. Measurement can be very troublesome when it is used incorrectly – to judge, blame, and humiliate people who are working very hard to do the best they can with what they’ve got access to. This is the dark side of measurement. And when all you have experienced is the dark side of measurement then it’s no wonder that people avoid and lay blame on measurement when business problems arise. Measurement is often an easy and visible target in these cases.

However, I worry that this type of response is due to the fact that measurement is largely misunderstood. Here’s what I think.

The purpose of measurement is to: (1) provide useable information and feedback on how business processes are performing, including the results they are producing; (2) provide early warning signals about possible operational and strategic issues; (3) facilitate insights into the cause and effect relationships within the business and how the organization works in an integrated way to produce business results; (4) facilitate organizational dialogue about what’s going on and to set the stage for learning and improvement, when required; and (5) support informed decision-making.

Measurement should NEVER be used to blame people for results because measures are generally designed to provide information about the performance of business processes and systems – not people. When unexpected results and under-performance occur, you likely have a process or system (i.e. organizational, management, accountability, etc.) problem on your hands – not a people problem.

That being said, when barriers to innovation occur in an organization, my experience is that it’s either a problem with the business strategy or it’s a management issue.

 

When it comes to creating and managing your business strategy, it is important to remember that measures are simply the tools we use to represent the key strategic objectives in the business strategy. You see, if you haven’t clearly defined the key elements of your business strategy, then it’s impossible to ensure that it is properly captured by a good measure set. A good measure set includes one or two indicators for each strategic objective in your business strategy – measures that directly or indirectly relate to a strategic objective based on its definition.

Let’s look closer at a business strategy that includes innovation as a key strategic objective. The first question I would ask is: What do you mean by innovation? Is it hard core R & D? Or does it look more like the incremental but important improvements achieved through continuous quality improvement (CQI)? Do you mean something altogether different and, if so, what? It is very important to realize that, if you want innovation to make its way into your measure set, it has to be included in your business strategy AND it must be clearly articulated.

If innovation hasn’t been clearly included in your business strategy and/or described in detail, don’t blame measurement for a lack of innovation. What you really have is a strategy problem.

 

In reality, most companies know whether innovation is an important factor in the success of their business and business strategy. From there, many will include some measure(s) of innovation or CQI in their measure set. So, how does innovation still end up falling by the wayside in some organizations? The answer is management problems.

Failure to execute a business strategy, such as innovation, has three primary management-based causes: (1) lack of, or inappropriate, prioritization and balancing of business objectives; (2) poor organizational alignment; and (3) a failure to build the required accountability structure and culture. 

 

1. Prioritization and Balancing of Business Objectives

What is the relative importance, right now, of your innovation strategy in relation to the other strategic objectives in your business strategy? Is it one of the top 3 – 5 key objectives for the upcoming period or is it lower on the list? It is essential for business leaders to make these prioritization decisions because it is unrealistic to think that all strategic objectives in a business strategy can receive equal work effort at the same time – no company has the unlimited organizational capacity required to do this. Organizations that fail to define, and communicate, these relative strategic priorities make business decision-making difficult for managers and employees, setting the stage for the poor execution of all of their strategic objectives.

Another challenge is being aware of, and effectively balancing, opposing strategic objectives when they exist in a business strategy. Specifically for this discussion, objectives relating to innovation versus those related to risk management/avoidance would be examples of naturally opposing objectives. While the resulting push and pull can be handled through a business strategy prioritization approach, it is often better to soften one objective and strengthen the other through business strategy discussions. This way, the challenge that is faced by trying to implement powerful opposing strategies is worked out before it comes time for strategy execution.  

If innovation is not happening in your organization when it should be, it is important to determine whether the root cause relates to the prioritization of this objective. If innovation is a recognized business strategy for your organization but it has a lower priority at this point in time, you would expect to see evidence of some innovation activity but at lower levels of intensity. If, however, business priorities are unclear in your organization, it is important to determine whether innovation has fallen off the agenda as a result.

 

2. Poor Organizational Alignment

Is innovation, as defined in your business strategy, adequately supported by your organization? That is, does your organization have the organizational structure, business processes, and projects in place to support the execution of an innovation agenda, do employees have the skills and capabilities they need to execute the innovation objective, and are the plans, tools, technologies, and resources (including budget dollars) required to support an innovation strategy in place in your organization? Poor organizational alignment with an innovation strategic objective will prove to be a key barrier to innovation in any organization.

 

3. Failure to Build the Required Accountability Structure and Culture

Who in your organization has accountability for the completion of your innovation strategy? Who is taking ownership for ensuring that the innovation agenda moves forward appropriately? Who is the owner of your innovation processes? Who has accountability for providing the necessary data and performance commentary for your innovation measures? Do the people in your organization display a dedication to action and follow through and demonstrate a shared commitment to seeing that your innovation strategy achieves its desired results? These are all elements of the accountability structure and culture that is required to ensure that your innovation strategy is executed as planned. If your organization’s innovation agenda is falling behind, unclear or undefined accountabilities for action and a poorly developed culture of accountability could be possible root causes.

 

Innovation is an important business strategy for many organizations, however, it is frequently not fully realized. Sometimes, poor measure selection and utilization is identified as the reason for this outcome, however, this is almost always a red herring. It is far more likely that a failure to execute an organization’s innovation agenda is either a strategy problem or a management problem. When barriers to innovation exist in a business, it is critical to complete a root cause analysis and then implement the necessary changes to get the innovation strategy back on the desired course.

Is innovation an important but problematic objective for your organization? Take the time to clearly identify and then eliminate the REAL barriers to success.

 

Measure What’s Important, NOT What’s Easy

Most of us buy into the need to measure performance.

Whether it’s the score of our team in a baseball game, your time in the last 10K run you did, or the average profit per employee in your organization, measurement helps us evaluate the current level of performance, determine whether we are moving forward in the right direction, and identify whether improvements are required when performance isn’t at the level we expected.

However, once you get on board the measurement wagon, it’s critical to realize how important it is to measure the RIGHT things. Unfortunately, it seems that many organizations measure what’s easy to measure with little thought about whether what they’re measuring is actually worth the effort. That is, few companies seem to consider whether they are measuring what’s important to measure.

The truth is that many organizations are swimming in data but, in many cases, it’s “legacy data” – data they have always captured because someone thought it was a  good idea once.  In many organizations, this legacy data no longer really serves an obvious purpose however everyone is afraid to give these measures up.

It’s almost like they think that some data is better than no data.

However, this thinking doesn’t work. Particularly if the measures you are currently measuring and the data you are collecting aren’t delivering value to your organization. Measures and data that are easy to get and deliver little in the way of informational value are a lot like candy – it makes you feel good, doesn’t deliver much in the way of (nutritional) value, and is hard to give up.

What if your organization measured LESS by focusing on what’s really important? What if your company focused on the vital signs that added the most informational value to your use of measurement?

Think about how much time and effort could be saved and how much capacity could be freed up in your organization if people eliminated the time spent on collecting and looking at valueless measures. What if some of that time could be spent looking at and discussing the impact of measures and results with high informational value? Think about how much your organization could do and how much further ahead it would be if you measured less that told you more! This is what can happen when an organization focuses on measuring what’s important.    

The first step in determining what’s important to measure is to be clear on what exactly you are focusing on in your company’s measurement efforts. Is it the performance of your business strategy? Is it the ability of your organization to execute your business strategy as defined by its various operational plans? Is it the ability of your sales team to execute your sales strategy and produce defined sales results? Is it the ability of your packaging line to perform at optimal levels? Is it the quality and efficiency of your claims adjudication and payment processes?

Essentially, this first step involves defining your measurement “playing fields” as well as the purpose behind your various measurement activities.    

Once this has been defined, the next step in selecting important measures is to apply a few criteria that will help you identify ones that are high on the information value scale.

 

 They should be specific. A good measure relates very closely to the thing you are trying to measure. It helps a great deal to have very specific information about the thing you are trying to measure in place before you try to choose relevant measures. For example, if you are trying to measure quality, it’s important first to agree on what you and your colleagues mean by quality. Is it just fewer or zero errors or is a combination of product cost, on time delivery, and delivery of a product to customer specifications? Essentially, what does quality look like in action at your company? Defining the essence of the thing you are going to measure makes it easier to select a good measure that tells you what you want to know about the thing you are measuring.

 

They should be simple. A good measure is simple to calculate and simple to understand and analyze. Measures that have complex calculations often produce results that people don’t understand and can’t relate to. More importantly, when you use complex measures, people at the front lines of your organization, where action takes place, don’t know whether they should, and how to, respond to the results. Finally, complex calculations can hide performance trends that would normally drive early action. For example, something I am seeing in my hospital clients is a move away from traditional infection rate reporting (rate per X patient days) - an externally driven measurement that is hard to take action on. Instead, they are reporting number of infections because a straight count makes it easier for nurses and doctors to quickly see whether they have a problem that needs further investigation.

 

They should be sensitive to change. Most companies measure things to keep a finger on the pulse of the organization. When you are measuring the vital signs of your company, you want to use measures that will pick up changes as soon as they happen. While you may choose not to respond to a change immediately, good measures let you know that a change has in fact occurred, giving you the option to respond based on your assessment of the nature of the change.

 

They should be timely. Good measures give you information to look at on a regular basis and quickly enough that you can take meaningful action in response to results when required. What is a good frequency for results availability? The answer depends on what you are measuring and why. If, for example, you are measuring the performance of a process and are using the results to make performance better tomorrow than it was today then a daily frequency may be appropriate. If, however, you are measuring employee satisfaction, quarterly may be the ideal frequency because it allows the impact of your action plans to be seen in subsequent survey results. Whatever frequency makes sense for what you are measuring, be sure to select measures that produce results data as soon as possible after measurement has taken place. For example, throughout my career I have generally observed that most financial results aren’t available until 3 – 6 weeks after the end of the measurement period. When this happens with your measures, you are essentially making decisions today based on very old information – things may have already changed! 3+ weeks is simply too long to wait to get performance results information for a measure. In contrast, a good measure is one where results are available <5 days after the end of the measurement period.

 

When you use this measure selection criteria, you will find that you are able to make more informed choices and select the best measures for your measure set. And, when you find a good measure or two for the thing you are striving to measure, you will all of a sudden feel ok about not measuring it ten different ways. This is because you have the confidence that those one or two measures are telling you what you really need to know about the critical performance elements of the thing you are measuring.

This is how focusing on what’s important to measure allows you to reduce the number of measures you have to look at to stay on top of the vital things in your organization.              

 

Let’s be honest - measuring the right things isn’t always easy to do. For example, if you want to measure the performance of your internal learning and development program, you could measure the number of people who signed up and came for each course. That’s easy to measure. However, what you really want to know about the performance of your L & D program is its impact on the development of employee competencies and the degree of application of new skills on the job. This is much harder to measure but it’s worth working towards because it’s got a significantly higher information value rating than the attendance measure. As a result, it's important to measure.

Sometimes you get lucky in your measurement efforts and you discover that what’s important to measure is also easy to measure. When it happens, that’s good. However, in my experience, it doesn’t usually happen this way. More often than not, the most important measures are a challenge to get but it’s almost always worth the effort and investment.

Remember: Putting together a set of measures with high information value should be your goal and it’s often a journey for an organization. Your challenge along the way? Don’t settle for what’s easy to measure – focus on what’s important to measure!

 

How to Implement Business Performance Measurement Flawlessly in Any Organization

Business performance measurement is critical for every organization – big or small. From the biggest corporation to the one person shop, without performance measurement, you simply don’t have a handle on whether your organization is working in a way that is moving it forward productively towards its goals. Just as important, you are missing a critical feedback loop that allows you to: learn more about how your organization REALLY works to produce results; identify and explore areas of underperformance; see whether targeted interventions are actually producing the results you want/expect; and pro-actively discover when improvements and/or a change in business direction may be required.

As the ever insightful Seth Godin pointed out in one of his blogs last week (click here), you just aren’t running your organization professionally without a system of measurement in place. To me, if you want to really be, and be seen as, a professional business leader, AND reap the benefits of professional business management, you MUST introduce and/or expand the use of business performance measurement in your organization without delay.

Whether you are thinking of implementing an approach such as the balanced scorecard or another business performance measurement framework in your organization, here are the steps I have learned, through experience, you must go through if you are going to introduce performance measurement within your company both effectively and successfully.

 

(1) Determine your business goals and define your performance measurement philosophy

Before you begin measuring you need to decide what to measure. My advice is to only measure the important stuff because otherwise you just end up measuring what you can whether it adds value or not. Since no business has the time and resources available to measure just for the sake of measuring, the best advice is to start with your business strategy, goals, and objectives – knowing how your organization is doing in relation to these key elements is the basis of good measurement.

It is also important to take the time to think about and discuss your company’s performance measurement philosophy. This includes the purpose of measurement, who will use performance results to do what, how you want to share performance results, and your indicator selection criteria. Taking this step early makes indicator selection and business performance measurement process design decisions easier when they come up later on and in the future.  

 

(2) Select indicators that align with business goals

It seems obvious to tell you to choose indicators that line up with your business strategy and goals but how can you make sure that you actually do this? The key to success is to have a really good understanding of each business objective in terms of what it really is, what’s included and what isn’t, and the outcomes the objective is meant to produce. Once these “definitions” are in place, it becomes much easier to select indicators that relate to your business objectives. Selecting indicators that closely align with your business objectives is the only way to get the feedback you need on progress on those objectives.

 

(3) Define each indicator

Selecting your indicators is just the first step. You must also define each indicator including a word definition and, when applicable, a mathematical calculation. Why? Because it’s the only way to be clear about what is being measured.

Here’s a short story from my past to illustrate:

Revenue – seems clear enough, right? Well I was working in my BU in an insurance company and we had revenue as an indicator on our BSC. The corporation also had a revenue indicator on their BSC however the revenue results on our BSC and for our BU on the corporate BSC were never the same number! Needless to say, the auditors came knocking one day to point out the disconnect. After a little investigation, we discovered that the corporate definition of revenue and our definition of revenue weren’t the same. We got it all sorted out to everyone’s satisfaction but it really brought home the idea that, even with supposedly common indicators, being clear on an indicator’s definition is absolutely critical.

Clear definitions also ensure the consistent production of results that are measuring what you think they are measuring. Indicator definitions also include information about data sources, the frequency of data collection, data consolidation procedures, and data and commentary owners. Essentially, you cannot produce business performance results without clear and full indicator definitions.    

 

(4) Assign one person to oversee your organization’s performance measurement activities

A new business process like business performance measurement won’t gain a foothold in an organization without someone to guide and manage its implementation and use. It’s important to identify the one person in your organization who will take on this accountability and the associated responsibilities. For more information, check out a recent blog post on this topic by clicking here.

 

(5) Spec out and build or buy your performance measurement presentment/reporting tool

Business performance results are no good to any organization unless they are visible and shared. How will your organization do this to the best effect? This question should have been answered in your performance measurement philosophy and should guide you in defining the specifications for your performance measurement results presentment and reporting tool. Once the specs have been created, you must make the decision whether you are going to build or buy a tool that will meet your needs (check out a previous blog post on this topic by clicking here). Just remember that excel isn’t a “free” option and that there are many high quality performance measurement software applications available at every price point. Once the best tool has been identified, it must be implemented in your organization – time for implementation will dictate the timeline for completion of many of the steps outlined below.      

 

(6) Design your business performance results data and commentary collection process

How will data get into your presentment tool? When does it have to be there by? How will commentary owners know whether commentary is required? Who is going to post interim results and by when? What processes does your performance measurement presentment tool/application require? Basically you need to map out the steps that will take you from the start to a fully populated set of business performance results and commentary as well as the accountabilities and timelines for step completion. The result is a process map that can be communicated to, and followed and improved by, everyone participating in the business performance results production process.  

 

(7) Design your performance measurement results review meeting

Once your business performance results are ready, how will you review and discuss them? Will you create a new meeting to do this or re-purpose an existing one? How frequently will they happen and who will attend? What will the standard agenda look like and who will do what at the meeting? Thinking this through, communicating it to participants, and coaching attendees for participation success is a critical step in a successful business performance measurement implementation process.

 

(8) Create data and commentary collection sheets, online forms, and/or repositories (if required)

Once your business performance measurement presentment and reporting tool has been selected and your data and commentary collection processes have been defined, you may have manual data and commentary collection processes that require the creation of data and commentary collection vehicles and tools. Create them now so that they will be ready to share with data and commentary owners. 

 

(9) Identify data and commentary owners, define their role accountabilities, and create role documentation

Who is providing data and commentary for each indicator? What is the role of the data/commentary owner? What do they have to do by when? It is important to ensure that every indicator has at least one data and one commentary owner identified – creating a list helps identify ownership gaps and capacity concerns, and will make managing the data and commentary owner network easier. Role accountabilities will have been defined by the data and commentary collection process – creating clear role documentation for data and commentary owners that tells them what they have to do when helps data and commentary owners play their role in the business performance measurement process flawlessly.

 

(10) Let people know that they are data and commentary owners and provide them with training so that they can play their role

Data and commentary owners cannot play their role unless they know: that they have an accountability, what that accountability requires (including submission requirements and timelines), what tools they have access to (i.e. data and commentary collection tools, root cause analysis tools, etc.), and how to use them. Education and training will take care of this and must be included in your performance measurement implementation process.

 

(11) Decide if you want to collect historical data and, if you do, collect it

Will historical data add value in helping you evaluate the trends in your business results? If so, and if historical data is readily available, you might wish to collect it and then upload it into your results database. If you are going to take this step, do it at this point in the business performance measurement implementation process.   

 

(12) Run a performance results collection process in “slow motion”     

The business performance measurement process introduces many new responsibilities, tools, and requirements to your organization – often with very tight completion timelines. It’s a good idea to do a data and commentary collection trial run on a lengthened timeline before your first real results collection process. Doing this gives everyone the chance to get to know and practice their new roles without time stresses, and tests out both your results collection process and presentment tool. A trial run can often highlight opportunities for improvement that can be incorporated before you officially launch your business performance measurement efforts.  

 

If you follow these 12 steps, I promise you that you and your organization will be ready to start collecting your business performance results in earnest and that the process will run almost perfectly the first time (I hesitate to say absolutely perfectly because, in my experience, something invariable comes up that you hadn’t anticipated, even with your trial run!). The benefit is that, with solid processes in place and some practice under your belts, you and your team will be freed to focus on understanding what your business performance results are telling you about your business and determining required next actions.

Business performance measurement facilitates the transformation of an organization into a flexible high-performance system that excels at: constantly aligning and re-aligning the activities, projects and resources of the organization with its business objectives; understanding how the business really works and what levers produce the desired results reliably; demonstrating agility in the face of an evolving business environment; and consistently achieving business performance results.

And hey – who doesn’t want that anyway?

Follow These Steps to Realize the Value of Your M & A via Strategy Maps and the Balanced Scorecard

Is a merger or acquisition on the horizon for your organization? If it is, you have company. Earlier this year, PwC reported that, in Canada alone, M & A activity in 2010 was at a 5 year high with 3,001 deals worth $155 billion being made (click here to read more). It is projected that M & A activity in Canada, for example, will be even higher in 2011. The PwC report states that because organic growth prospects within North America will remain limited in 2011, many well capitalized corporations and funds may find that M & A is their best, and only, tool for growth over the next while.

Companies regularly enter into mergers and acquisitions to create significant increases in enterprise value, however, this value can only be realized when M & A’s are managed right. Unfortunately, the statistics suggest that organizations with recently transacted deals achieve integration success only 30% of the time (click here to read more). This means that 60 - 70% of M & A’s don’t demonstrate their expected value. This is largely due to the fact that the post-M & A company isn’t adequately integrated and aligned, preventing it from producing results at, or above, anticipated levels.

The primary driver of sub-optimized M & A results is, quite simply, declaring success too early in the process (i.e. when the deal is closed) and then assuming that the expected performance results will be achieved automatically. Taking this approach avoids the reality that successful M & A’s require clearly understood and actionable post-M & A strategic and integration plans (including plans for operations integration and optimization, people/culture integration, and customer care), as well as an approach for performance measurement, learning, and plan adjustment.

While organizations can look very similar at a high level (i.e. they play in the same sector, serve the same or complimentary markets and customers, and produce the same/similar products and services), the customer value proposition, processes, technology platforms, and organizational culture that produce the business results in each company can be very different. Lack of attention to these critical details can translate into staff turnover, loss of institutional and customer knowledge, sub-optimized operational performance and cost structures, and customer acquisition and retention challenges. Sooner than later, all of these problems will show themselves in the company’s top and bottom line financial performance results.

Based on my own personal experience with M & A’s (with both an acquiring company and an acquired company), I have come to see that the key to realizing the value of any M & A activity is to follow these very important steps:

 

(1) Define the business strategy for the post M & A organization and translate it into actionable, operational terms so that ALL employees and stakeholders can quickly understand the objectives of the “new” company

What is the customer value proposition of the post-M & A organization? How is the “new” organization going to work in an integrated way to produce results? How will people in the “new” organization work/what are the organizational values? What skills and capabilities do people need and what role will the organization play in developing its people?

These questions and more must be answered and clearly spelled out for the post-M & A organization. It is important to do this in an acquisition scenario and absolutely critical in the case of a merger where a hybrid entity is the result.

The best tool for translating the post-M & A business strategy into understandable and actionable terms is a strategy map. This one page picture makes the “new” organization’s core/operating values, customer value proposition, and theory of how the organization will work together in an integrated way to produce desired business results clear to all employees – regardless of which organization they came from. When the strategy map for the new organization is created with a clear vision for the new organization, strong leadership guidance, and with participation by employees from both organizations, the result can be the beginning of a cultural shift that translates into the achievement of projected M & A value sooner than expected.

 

 

(2) Create a cascaded integration strategy and plan that is aligned with the post-M & A business strategy and is guided by a time-bound integration vision

Completing a successful integration process will be critical to achieving the post-M & A business strategy – a good approach to ensuring success is to create an aligned integration strategy that defines specific integration objectives and delivers desired results as defined by a time-limited integration vision. By using the business strategy as a guide, a cascaded integration strategy, including objectives related to, for example, key cost realization, customer retention, process optimization, people management, and cultural integration can be defined and diagramed using a strategy map. Producing an aligned integration strategy map gives the organization specific integration objectives to achieve that will contribute to the overall success of the business – not work against it. This is a critical factor in realizing the projected value of a M & A.

Once an integration vision and strategy map have been created, a gap analysis exercise can help define the projects required to successfully execute integration objectives and achieve the integration vision. Typical projects include operational process integration and re-engineering, technology platform integration, targeted customer retention initiatives, customer and employee communications, employee skills and capabilities development, and organizational change management initiatives – all designed to close strategically identified organizational gaps.

 

 

(3) Measure Progress, Impact, and Success, Learn, and Make Required Adjustments Along the Way

 In the post-M & A world, it is critical to measure the execution of both the business strategy and the integration strategy. In my experience, the best tool to do that is the balanced scorecard. With its capabilities as a management tool (and process), a communication vehicle (communicating what’s important and how the organization performing), and a catalyst for learning and improvement, the balanced scorecard allows an organization to make sure that it is taking all the right steps to integrate the organization and ensure that their integration work is translating into the desired business results and value achievement.

While some organizations only measure their financial results post M & A, many will leverage the BSC to keep their eye on the performance of the drivers of both the financial results and their business strategy. Adding an integration balanced scorecard provides organizations with the intelligence they need about the impact of their integration efforts on the business strategy and gives them a set of root cause measures they can explore when the business strategy’s strategic objectives are underperforming.  

 

At the end of the day, successful M & A’s happen when business leaders and organizations: (1) take the time to clearly define and communicate where the new company is going and how business units, functions, and employees must work together in an integrated way to produce results and create value; (2) define the roadmap/action plan to get there; and (3) measure and manage for success in “real time” using an aligned set of strategically relevant indicators.

Leverage proven tools such as the strategy map and the balanced scorecard to ensure true M & A success and to capture the projected value from your M & A activities.