The Glue

The Engine That Powers Balanced Scorecards

Ever wonder why some organizations are so excited about the results of their Balanced Scorecards and others decry the tool as ineffective?

Clearly, there are a number of reasons why scorecards fail, such as not having senior management buy-in, not having the top-level scorecard aligned to the strategic plan, not deploying the scorecards to all key departments, and not performing scorecard reviews on a monthly basis to drive accountability for the proper actions.

However, even when an organization avoids all of the above pitfalls,they must have the right "engine" in place, or Balanced Scorecards still won't work.

The engine behind the scorecard framework is a well-designed system of correlated, cascaded measures. These begin with top-level lagging (or outcome) measures that track performance of the strategic plan. They cascade through to mid-level measures, on to lower-level measures, and even all the way to identified root causes of under-performing measures.

How to Measure the Hard to Measure: Part 3 - Strategies for Too Many Measures

In my last post on How to Measure the Hard to Measure, I focused on strategies for narrowing large quantities of measures down to the critical few for a Balanced Scorecard. Here are some approaches to consider with this issue:

One approach is to use a measure that focuses on HOW MANY of the child measures actually hit their targets.  Now, rather than having a green indicator that hides the red performance of one of 10 child measures we talked about earlier, we would actually see that 9 out of 10 of the children met their goal. That might give me a better feel for what is going on and at the very least makes me feel more comfortable that I'm not missing anything if the measure stoplight is green (this approach is called "percent of measures which achieved target" in ActiveStrategy Enterprise).

How to Measure the Hard to Measure: Part 2 - Large Quantities of Measures

In my previous Part 1 post on measures, I discussed Measuring Project-based Objectives. This time I'll talk about how to deal with the omnipresent problem of too many measures.

Ideally, Strategy Execution projects include a lot of time of figuring out what critical few objectives are important to an organization and picking a few measures. Sometimes, however, there are industry standard measurement frameworks that are designed to make it easier to compare performance across different organizations.  These frameworks serve a great purpose and can really help define focus in an organization. But if you are not careful, you may find that the sum of the parts is not really a useful tool to help get the results you are looking for.

Take HEDIS, (Health Plan Employer Data and Information Set) for example. This is a set of more than 60 measures (the number changes with new releases) that indicates everything from how fast a health plan answers a phone to how well they screen their members for cancer.  It's a great tool for businesses to compare health plans and many health plans work hard to improve their numbers.  There are lots of other examples of such frameworks in hospitals, IT Organizations, Government and many other categories and the dangers we are talking about apply to them as well.

In an ideal world, the HEDIS measures might be sprinkled across many different scorecards in the organization -- owned by those accountable for them.  So the director of the call center might own the two or three metrics related to that, the Chief of Cardiology Standards might own the few related to heart treatment, etc.  Invariably, though, top executives want a single number that tells them "how we are doing on our HEDIS measures."

How to Measure the Hard to Measure: Part 1 - Project-based Objectives

If you are a frequent reader of The Glue, you know that we constantly espouse the importance of linking and monitoring strategic projects to the business objectives they support.  So, to "Improve Claims Resolution" we might link the "Implement Automatic Claims Adjudication System" project and include a review of its status in our business reviews.  Straightforward, makes sense, and gets results.

Typically in this situation one would have the accountable owner of the project make frequent, brief, and to-the-point status reports. Ideally, their reports would consist of:

• the timing, budget, and quality status of the project (red=late, over budget, below quality, etc.)
• Highlights of milestones completed on time
• What is late, why, and what we are doing about it
• Potential upcoming problems

There are times, however, when completing the project is really viewed as a business objective in and of itself.  One example of a project as a business objective is when a project is so big and strategic to an organization across so many different levels, that its completion is viewed as a top level strategic objective.  A huge, transformational, IT project that touches many parts of operations might be an example.  Completion of a integration plan after a merger might be another.

How to Measure the Hard to Measure: Introduction

A basic tenant of Strategy Execution is the old saw: "if you can't measure it, you can't improve it."  I'd generally agree that if you can't put real numbers behind something and don't review accountability and performance on a regular basis, you probably won't get optimal performance improvement.

It is pretty straightforward to measure things like revenue, savings, turnover, and the like. It's also not rocket science to find and measure leading or driving indicators of these high-level lagging indicators.

But in complex organizations, there are many important business objectives with measures that are not immediately apparent. In this series of posts, I'll take a look at some best practices for some difficult-to-measure scenarios. 

I'm also looking for feedback on any specific instances that you readers might have that we could discuss, so please add a comment below to pose a question or idea of your own.

Here is what is on tap for this series:

• project based objectives
• indices composed of many measures
• daily measurements
• influence within an organization
• internal customer satisfaction
• the "best" vs. "everyone is very good"

Let me know if you have other topics you think we should cover.

How Organizational Culture Affects Target Setting

In two previous blogs (Setting Effective Targets & Three More Ways to Set Targets), I talked about the best ways to set targets for performance measures on Balanced Scorecards.

There are also psychological and cultural aspects that impact how an organization sets targets.

If an organization is risk averse or if management tends to look for someone to blame when performance falls short, targets will be predictably less aggressive and easily achievable. This is usually referred to as “sandbagging” and occurs because the penalty for under-achieving a target is so much greater than the risk of being accused of setting soft targets.

On the other hand, organizations that reward real achievement and where missing a stretch target is not punished, but merely analyzed for root causes and addressed, real “stretch” targets are more likely.

If you're in an organization that leans more toward the risk averse culture, how do you encourage employees to set real stretch targets?

First, examine the management style and their reaction to missed targets. If it is punitive in nature, that managerial behavior must change or the employees will never trust management enough to take a risk and set a stretch target.

However, I have seen organizations where the management reaction to missed targets is healthy, yet the targets are still easily achievable for other cultural reasons. Sometimes these reasons are merely perceived, but as we know, perception is reality.

Setting Effective Targets - the Two Best Ways

Setting good targets for strategic measures is a critical part of designing an effective strategy execution or performance excellence framework. These targets (along with your actual performance data, of course), trigger the red, yellow, and green stoplight indicators on Balanced Scorecards. These stoplights determine where you focus your improvement efforts, so bad targets can mean you're allocating critical resources to the wrong areas.

Too often, I find that organizations simply don't know how to set good targets. There are five ways that I have used and some are better than others.

If you consult the Malcolm Baldrige National Quality Award or any state quality award criteria, you will find the two best ways to set targets: benchmarking (or industry comparisons) and customer valid requirements.

We'll start with these two. I'll cover the other three in my next post.

Benchmarking is effective because you are attempting to find the best industry performer in whatever outcome you are measuring and meet or beat their performance. Dr. W. Edwards Deming, the noted quality and productivity guru, was not a big fan of benchmarking because he thought one might be limiting their improvement potential in some way by focusing on what others have achieved.

Three More Ways to Set Targets

Earlier this week I wrote about the two best ways to set targets for performance measures (Benchmarking and using Customer Valid Requirements). As promised, here are three more ways to do it.

The third way to set targets is to look back historically at your performance. If you used to perform better than you do now, strive for that historical target and try to determine what has changed to cause your deteriorated performance and turn it around.

A fourth way to set a target is to determine “what the data shows is possible.” Let me cite an example to help illustrate this method:

Measures in the Non-Profit World

For professionals in the non-profit world, it sometimes seems that life is much easier in the commercial world.  In the commercial world, it’s so much more straightforward to measure strategic outcomes (revenue, profit, number of new product introductions, customer satisfaction rating).  However, with a little thought, it is definitely possible to measure meaningful outcomes in the non-profit world to ensure that you are meeting your organization’s goals and satisfying your constituencies.

A key concept in deriving meaningful measures in a non-profit environment is the idea of “outputs” versus “outcomes.”  Outputs are measures of activities or processes completed, such as “# of applications processed,” “# of articles published,” and membership statistics. Outputs can be easily measured, and for that reason they often are tracked on the top-level scorecards of non-profit organizations.  These outputs don’t always have a clear relationship with the organization’s desired outcomes, however.

Outcomes are the organization’s intended impacts on society or on their membership group.  They are often very “squishy,” qualitative, and lofty, such as “improve women’s health” or “reduce obesity.” Non-profits attempt to reach these strategic goals using various means, such as conducting research, publishing studies, lobbying congress, sponsoring promotional events, organizing educational campaigns and events, and so on.

Dashboards and Supply Chain Metrics – Scorecards & SCOR

Supply-chain and manufacturing professionals have always used a large number of metrics to measure the health of their functional areas, because these areas tend to create most of the value for their companies, while also generating most of the company’s total expenses. 

These metrics were standardized and codified by the SCOR (The Supply-Chain Operations Reference-model) effort in the 1990s and early 2000s.  So, the idea of measurement is not new to these professions. But how do traditional supply chain and manufacturing metrics fit into today’s emerging strategic dashboards?  That is, how does SCOR fit with scorecards? First, a quick look back at the history of SCOR.

Metrics such as manufacturing through-put, error rate, on-time delivery, back-order percentage, days of supply, number of invoice errors, rework percentage, and dozens more have long driven the operations of supply chain management and manufacturing.  In fact, SCOR was organized precisely because there were so many metrics and so many different ways to calculate them that a need was revealed to standardize them and promote the standardized definitions.

Finding the Data You Need for Your Scorecards

I’ve seen balanced scorecards with as few as nine measures and monster scorecard hierarchies that eventually drill into thousands of measures. Whether yours is large or small, you'll run into questions about where to find the data you want to track on scorecards. Across industries and even in government, a "rule of thirds" seems to hold: you are already reporting 1/3 of the data you need, another 1/3 is “around here somewhere,” and you can’t get at the last third — yet.

• The first third. Most of this data already exists in reports or dashboards currently being produced. Often, you will only need a level or two of summary from a given report. Unfortunately, there can be A LOT of reports where you need only a few data elements. 
• The second third. These are measures that can exist in lots of forms: scribbled on a post-it in someone’s cube, on the excel spreadsheet that Jane in marketing keeps, on reports from external vendors or partners, or inside that rickety old legacy system everyone is afraid to touch. Tracking down all of this data can be a lot of work but it is also a relatively quick win when you start managing performance with it.
• The last third.  This is the "Boy, it would be great to measure this" stuff. I tell executives (note: only the executives) to leave these on a scorecard (as place keepers) if they really think the organization can get around to measuring them in the coming year*. Then, it's up to the executive to push and prioritize people to come up with a plan to actually measure these. Lots of these don’t end up getting measured, but some do and they can actually have a huge impact.

This "data audit" process can take up a chunk of time in a Balanced Scorecard/Strategy Execution implementation, so plan accordingly in your project plan.

 

Wherever you end up getting your measure data, make sure you come up with good, clean definitions. The definition should explain exactly what the data element is, where it comes from, and give an example calculation if applicable. If there are ten definitions of revenue in a company and your scorecard doesn’t explicitly call out which one you're measuring, you are going to create more questions than you answer.

* So actually, the rule of thirds can be self limiting: if you eliminate a lot of the measures you won’t be able to get to, you will end up with less than a third in the category.

How Much Data Do You Need for Strategy Execution?

I love data. There I said it.  I’ve been building warehouse and big systems to move, load, report, compile, assemble, convert, and present data for most of my career. But I have come to learn that when implementing Strategy Execution, too much data can be worse than not enough.

One of the first questions that a Strategy Execution implementation team faces is: How much data will we need?

You really can’t answer this question unless you have been through a good round of strategic planning and have identified your strategic objectives, measures, and targets. 

Even then, you need to make sure your team and your sponsors understand the difference between scorecards, dashboards, and reports or you will be heading into trouble.  We once worked with a manufacturing client that wanted to build a Strategy Execution system, but  ended up with a 40,000 metric assembly line production reporting system. Fun, but not strategic.

Balanced Scorecard Basics: Initiatives vs. Objectives

A common area of confusion is the distinction between Initiatives and Objectives and how they each relate to a Balanced Scorecard. Here's a basic primer:

Initiatives (a.k.a. improvement projects ) have defined start and end dates (typically less than one year) and dedicated resources (people, budget, time). Examples of initiatives are "Implement customer retention program" and "Analyze cause of defect rates."

Objectives are brief verb-noun statements that describe a specific goal of your strategic plan. Objectives are more likely to span multiple years, as long as they still reflect your most recent strategic plan and SWOT Analysis (a review of your current Strengths, Weaknesses, Opportunities, and Threats). Examples are "Improve customer satisfaction" or "Reduce costs in manufacturing."