A fundamental aspect of managing the health of anorganization is often — unfortunately — depended on the quality and dedication of the management team and the level of attention the information delivered from that team is used to drive changes to get to organizational success.
A fact of live is that the scorecard is often perceived as another item on the checklist, while if used properly as a dashboard, it could lead to the desired outcome. At least this is often the case for the traditional bookkeepring type of controller. The value-added financial business partner would of course disagree…
Since many companies have expensive systems monitoring their performance we would like to discuss briefly what are the main drivers of performance and how should management use this information to drive actions.
First of all it is important to know that the aim of any balanced scorecard should be to drive behavior. This behavior should be derived and aligned to the direction of the company, set by the management of the organization. This direction should be translated in measurable goals which are often a combination of financial and as well as non-financial information, long-term and short term goals.
Secondly, to understand whether the organization is on track it needs to have a measurable target for each of the organizational aspects that need to be influenced (not only #finance) to achieve the goal. As with all goals they need to be SMART, specific, measurable, attainable, realizable and timely.
Back to the core of the discussion. Now we have a balanced scorecard in place, what can go wrong. Below you find the issues we have seen with using these scorecards:
- #managers are not sold on the scorecard : with this we mean that the people who are held accountable for the metrics are not sold on the idea, the metric or the goal and are simply not accepting the goal. This is the reason that involving the managers responsible for driving the goals towards success is critical. Bring them in preferably already during your strategic planning process where vision and company goals are discussed. Remember, the scorecard should drive positive behavior, not the opposite.
- Yet Another Financial Tool: in today’s environment we need to manage sharepoint, sharedrives, ERP’s, offline spreadsheets and report, why would another system contribute to organizational success. The only thing we can say that it is the tone at the top that will make the scorecard a success or not. Frequent review, feedback loops, closng out issues and asking questions, holding people accountable for their targets is going to be what is making the tool stand out of the rest. The management team needs to prioritize this over the rest and see it as something that they can use to drive success in their area of the organization
- Missing the story: I love stories, but numbers and trends alone are not always enough. When it gets to interpreting the data it needs to be clear what happened in order to take an action. If sales, a key metric, didn’t meet the target you need to know which customer caused the variance, was it mix, was it pricing, was it foreign exchange or did we have issues with production. Metrics need to be supported with the story so leave room for short explanations on your scorecard for those.
- Hard to Get Actuals: Ok, this one is self-explanatory, but often the harder the metric to get the better information it will give. For example if you want to know by how much you have outgrown your business you need to understand what is the size of the market, what is your share. All not easy to get, yet if you are a market driven organization clearly important and perhaps worth spending the time in getting the information. It is about finding a balance between what is hard to get and what is relevant. Discuss this with your management and challenge them if they go too far.
- Too many or too few metrics: I personally like to manage my organization on the “critical few”, meaning you need to know what is important for driving success and focus on the top 5-8 metrics that will get you there. The problem of having too many metrics is that your criteria for success may not be having been defined properly and you are trying to boil the ocean. Having too little metrics means that you may not get to success until you find out that that one other metrics was key as well. Finding a balance usually takes several cycles of using the scorecard.
- #not aligned to the goals of the organization: Remember the aim of the scorecard is to drive organizational success, as such the scorecards of all departments need to be aligned to the strategy. If a Supply Chain department thinks reducing suppliers is his top priority while the organization is in rapid growth and expantion modus than this may not be the right goals. Rather perhaps “On Time Delivery” or Supplier Quality” might be more appropriate. Always question what am I measuring and adjust when needed as the metrics you are using today may not be relevant in tomorrows business environment.
- No feedback loop: From experience, there is nothing more demotivating than delivering your reports in on time and getting no feedback. Make sure that your staff knows their deadlines, what the review will entail, what the expectations are when results are not there, that they need to present action plans for metrics that went south, etc. Setting expectations and actually reviewing the results in a monthly 1-2-1 meeting or a management team meeting will have huge impact on behavior.
- Metrics Are Not Visual: a scorecard needs to be visual. Why? This helps to interpret the data and to quickly see where we are off track or which area’s need attention. Use colors like Red, Orange or Green to indicate progress. Do not over engineer your scorecard — you can have fancy dashboard with meters — but remember. it needs to be simple to complete and create on a monthly basis.
There are other pitfalls but these make a good start to keep in mind. Get them right, implement them and stick to it for several months. Measure your results and adjust your strategy based on these inputs.
Good luck and let us know what you think by leaving a comment~!