The Balanced Scorecard
Business scorecards are often referred to as ‘Dashboards’ – the key information you need to drive your operation and ultimately, your business. Like an automobile dashboard, the Business version should be readily available, up to date, relevant, easy to see what’s happening at a glance and include only the key information required to drive the business. Scorecards are also very useful in measuring long term business trends and can give very valuable information for making strategic decisions. Metrics are also invaluable in determining root cause when things go off the rails. When developing a Balanced Scorecard, you should first answer the following questions:
- What’s important to my customer?
- What’s important to the business (internal stakeholders) besides what’s important to the customer?
- Which metrics will give me an accurate picture of how well we are doing on numbers 1 and 2 above? Will these metrics really measure the key drivers of my operation?
- Where will I get the data, how much will data collection cost in terms of time and money and how quickly can I get the data?
- How accurate is the data?
- How will I interpret the resulting metrics? I would caution on looking at data from a short time frame. The best use of metrics is to establish targets based on long term trends, and then measure against those targets keeping in mind that on any given day, there may be a ‘perfect storm’ of circumstances that skew the metrics from the long term norm. It is important to understand why the metrics are so far off target before initiating any ‘knee-jerk’ actions/reactions.
In my experience, the fewer the metrics the better, however, you need to be conscious of three major potential pitfalls in putting together a Scorecard:
- The metrics chosen do not measure what’s important to the customer, the business or both. Many businesses fall into the ‘this is the data I can get easily’ and develop metrics which they feel are a proxy to measure the key drivers. The guiding principle should always be ‘what do I want to measure’ and then go find the data and metrics that best measure that.
- The Scorecard is not ‘Balanced’. The old saying goes ‘You get what you measure’ and if your scorecard is unbalanced, it focuses on speed and not on accuracy for example, you may very well end up doing more harm than good.
- Too many metrics. This will be costly in terms of data collection, analysis time and could very well lead to confusion and will not provide any more insight than a carefully chosen set of key metrics.
The Balanced Scorecard can be a very powerful management tool to ensure you are taking care of all your stakeholders. Considerable care is required in establishing the metrics that make up the ‘Dashboard’ to ensure you are measuring the right things, in the right way, at a minimum cost in terms of time and money and interpreting the results correctly to drive improvements in customer satisfaction and business success. The wrong metrics or lack of ‘balance’ often results in suboptimal performance, and lost time and money fixing the wrong problems – driving your business off track!