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February, 2006

Making Scorecards Actionable Newsletter # 19 (2006)

Content of Making Scorecards Actionable Newsletter # 19 (2006)

» Test your organisation’s scorecard skills
» Functional Scorecards: Supply vs. demand-side focus
» Up-coming public seminars



TEST YOUR ORGANISATION’S SCORECARD SKILLS

To start with, we would like to take this opportunity to market our free web based “BSC Analyser”. It can be found on the web site www.makingscorecardsactionable.com (you find it in the menu to the left). The questionnaire contains twelve statements and you are prompted to react on each of them. Given the answers you submit, the system will compare your practice with what we preach in our book, and rate it based on what we think is important to make scorecards actionable. Check it out, and see if you agree with our automated opinion about scorecard implementations.



FUNCTIONAL SCORECARDS: SUPPLY VS. DEMAND-SIDE FOCUS

A reoccurring question that we meet over and over again is the question whether an organisation needs to have a corporate scorecard, for supporting departments (like IT or HR) to develop scorecards. If possible, of course, we think it is better if the company has expressed its corporate intentions in a strategy map and translated this into scorecards, before the supporting units describe their strategies in a strategy map and a scorecard, but we don’t think it is impossible to develop scorecards for units in organisation where there does not exist any corporate scorecard.

Hence, there is no reason for a support unit, e.g. an IT or an HR department, to stay away from using scorecards. Regardless which format the company has chosen to describe its strategy, the supporting units must make sure that their efforts are aligned with the over-arching goals. In many organisations, where corporate scorecards are not used, we have seen HR- and IT-managers, who have used strategy maps to initiate a dialogue with external users on what they expect of the support unit. In the literature, as well as in practice, such scorecards have come to be called “IT scorecards” or “HR Scorecards” (see for example Becker et al, 2001).

More challenging than the question whether it is possible for a support unit to use strategy maps and scorecards, even if the company doesn’t (we think the answer is YES), is what the functional scorecard should describe. Should, e.g. an IT-scorecard describe the “IT business” or “IT in the business”. The former is the most common utilisation of scorecards, i.e. the strategy map and the scorecard is used to describe the IT department’s mission and strategy; How it will market its services to the rest of the organisation, how it will fund its operation and development and what competencies and internal processes it needs to maintain or develop. These are what we call supply-side functional scorecards. The alternative approach, a scorecard for “IT in the business” – often advocated by e.g. the Chief Information Officers (CIOs) – is to describe how IT and information will be used in the business to create competitive advantage. These strategy maps and scorecards will not describe (maybe not even mention) the IT department, but entirely focus on IT issues in the operating units. Such scorecards typically focus on how the using departments will develop its procedures and competencies to benefit from the opportunities technology offer, descriptions of intended IT utilisation in the processes, tangible and intangible effects of IT utilisation that is delivered to the customers and if possible its effects on financial outcome. We refer to these scorecards as the demand-side’s view on the functional strategy and delivery.

It is, however, not always easy to understand if a strategy map and a scorecard describes “the IT business” or “IT in the business” just by looking at its content. Often, the two types of scorecards try to integrate the other; a scorecard for the IT department may contain indicators on how well the technology is picked up and used in the operating units (i.e. embedding indicators on IT-effects in the business). Similarly, a CIO scorecard for “IT in the business” may back-integrate to indicate how the business assures that they receive the right IT from its suppliers (for example an internal IT department), i.e. including IT-business indicators.

Instead, the scorecard is defined by the processes where it is used. And by whom it is used: Who receives the performance information in the scorecard? How will this information be used and affect the decision making?

A workforce scorecard (i.e. a scorecard describing “HR in the business”, rather than “the HR business”) is intended to be used by the line managers. Such a scorecard should cover issues on the company’s competence development, how the competence will be used in existing processes, indication on how more competent employees is expected to satisfy the customers’ expectations and whether this results in better financial performance than if the company did not pursue a competence strategy. The numbers in the scorecard may be compiled and presented to the line managers by the HR department, but it is the line manager who is the user of the information. She is the one who should look at the figures to understand whether the organisation is exploiting all competence possibilities or not. And to take action if the scorecard signals that the competence strategy is not executed as intended.

The Workforce scorecard (i.e. “HR in the business”) is thus similar to a normal financial performance report that is typically circulated in any organisation that has decided to create an internal structure where department (and even group-) managers are responsible for their financial budget. The financial budget (for the coming year) expresses intentions in financial terms, and the monthly performance report reveals to the unit manager whether she is on track or not. Typically, the finance departments produce these performance reports for the different departments, but it is not the finance department’s prime responsibility to evaluate performance and deviation. It is the unit manager who is responsible to evaluate the results, and to take actions to reach their goals. A workforce or a CIO scorecard can be regarded in the same way. It is not the HR or IT department’s intentions that are captured in these scorecards, it is the operating departments’ workforce (or IT) intentions that are described and evaluated. The HR department may assist the unit manager in producing the reports, but evaluating performance – and more important – taking action to assure that the strategy is executed, lies with the unit manager.

The IT or the HR Scorecard, on the other hand, describe respective support functions ambitions, similar to how an external consulting organisation would describe its business, and is used to assure that the strategy is realised. Given the last decade’s trend towards outsourcing, no internal support unit stands free from competition; if the unit does not deliver, it is likely to be replaced by an external supplier, offering similar or even better services at lower cost. The HR or IT manager must hence create a value proposition and a strategy to outperform its competitors. Of course, strategy maps and scorecards are effective tools that can be used in the IT department to communicate the strategy to the board as well as to the employees, and to monitor performance to assure that the strategy is realised.

To conclude with, our recommendation is thus: yes, it is possible to use strategy maps and scorecards in organisations that do not use scorecards on the corporate level. But, when deciding to create a functional scorecard, e.g. an IT or HR scorecard, it is important to take a stance on whether these strategy maps and scorecards will be used to describe and control the “IT business” or “IT in the business”, i.e. whether they should have a supply- or demand-side focus. If the organisation chooses the former, the scorecard will only assure that the IT department stay competitive, but will not make any effort to assure that the business is creating any value from the systems the IT department delivers. If, on the other hand, the organisation decides to use demand-side functional scorecards to assure that “IT in the business” is used properly, it is important that the line managers think that the scorecards are valid descriptions of how they should use IT or how they should manage the workforce – and are willing to take action when they see that they under perform according to the scorecard. Unless the line managers accept the demand-side functional scorecard as valid descriptions of their business, these scorecards will not be used and thus not affect the organisation ability to realise its strategy.



UP-COMING PUBLIC SEMINARS

During the coming months we will mainly appear in different Scandinavian conferences. Carl-Johan Petri and Nils-Göran Olve will run a full day conference with Civilekonomernas Informations AB on the topic “The controller’s four roles” (www.civilekfor.se), and Nils-Göran will chair to major conferences; the Controller Congress (www.ibceuroforum.se) and “The controller in public agencies”.

In addition to these public conferences we have a hectic European schedule, presenting our view on what makes scorecards actionable on various internal project kick-offs and launches.

In the section “Seminars” we post notes on our public appearenes and if you’d like to engage us for an internal event, don’t hesitate to send us an e-mail.






MAKING SCORECARDS ACTIONABLE NEWSLETTER is a bi-monthly update on our experiences and opinions on how scorecards and strategy maps can be made actionable – to help organisations realise their intended business strategies. The newsletter is compiled and distributed for free by the authors of the book “Making Scorecards Actionable – Balancing Strategy and Control”. Also make sure to check out www.makingscorecardsactionable.com to get up to date information about our seminars, to evaluate your organisation’s BSC skills according to our computerised BSC Analyser and to download presentations from the document archive.
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