The Value of Scorecarding

One of my first Scorecard exercises is one of my favorites.  It taught me a great deal about the power of scorecarding.  

I did what I suspect most people do.  I interviewed all the VPs and developed a long list of KPIs.  I then used an excel spreadsheet to organize the KPIs.  I put the KPIs down the rows, and the VPs across the columns.  Then to help visualize the data, I placed "red" cells where VPs were directly impacted by the KPIs and "yellow" cells where the VPs were indirectly related.  I did not intend the colors for anything other to call out attention for each of the VPs.

By choosing the "red" and "yellow" I had each of the VPs concerned that they were under performing in each of those areas.  I had to explain a number of times, the reason for the colors.  

• The first lesson was that by associating colors with performance, I clearly had the attention and focus of the executives of this team.  It sparked a number of very strong conversations about performance.
  

• The second lesson is that communication is just as important.  By doing a less than stellar job of communicating (at least from a visual sense) the information, I wasted a tremendous amount of time that should have been used for more strategic discussion.  
  

Scorecarding can be a very powerful tool, but it needs to be used appropriately.  

Scorecard or Business Fact Sheet

A common Scorecard design is to list a bunch of business facts - how many customers, total square feet, total employees, inputs, etc.  While these can be important business facts that executives need to know, they may not be manageable numbers.  By adding them to the scorecard, they take up valuable real estate and misdirect focus.  

As you are thinking through your scorecard design, take some time to consider if an item is a REAL KPI, or just a business fact.  Then design the scorecard to focus on objectives with potential links to business fact report(s).

Efficiency vs. Effectiveness KPIs

Key Performance Indicators (KPIs) should be measures of risk to annual goals or strategic objectives.  If we can keep this list of KPIs minimal, we stand a much greater chance of keeping the organizational focus on improving key processes.

To derive these KPIs we need to understand the organizational inputs, outputs, and desired outcomes.  While this is a little academic, it is a good way to start to organize and define your KPIs. Outputs / Inputs are measures of efficiency, while Outcomes / Inputs are measures of effectiveness.  By overlapping the organizational or departmental focus we can align and define these KPIs to make sure they are driving the desired behaviors.  

Tradionally Sales and Marketing goals are to be effective, thus revenue per head, or win percentage are better measures.  While finance and IT are generally geared for efficiency with cost per order, or IT spend per target are more common.  

KPI design is far more difficult than people expect and is often unique to the environment as strategies, objectives, and priorities vary organization to organization.

Scorecards & Dashboards

These are two terms that the BI world uses interchangably.  The only thing they should have in common is that they both can visually display data.  

Defined:

Scorecards are tools that help facilate discussions around strategy and operational performance management.  The indicators (KPIs) should foster discussions about corporate direction, resource allocation, priorities, and initiatives.

Dashboards should be used for tactical discussion triggers, like inventory orders, technical support, phone coverage, etc.

What should be happening with these tools is a far more structured use for each (and throw in reporting as well).  All too often these tools are used without discipline which leads to mulitple versions of the truth, lack of focus, red herrings, miscommunication, and ultimately a waste of time and energy.

IT and business users need to work together to better understand what each tool can provide, when that tool will be used, how it will be used, how it will NOT be used, and who should be using them.