PREVIOUS NEWSLETTERJune, 2008
Making Scorecards Actionable Newsletter # 33 (2008) Content of Making Scorecards Actionable Newsletter # 33 (2008) » Scorecards for Enterprise Resource Planning (ERP) systems? » Why measure number of No:s » Using BSC to rank and compare Primary Care Trusts (PCT:s) in England » Strategy Maps and scorecards at the University of Leeds » Dr. Petri featured on The Dashboard Spy Channel » What did you think about this newsletter? SCORECARDS FOR ENTERPRISE RESOURCE PLANNING (ERP) SYSTEMS? We have been involved recently with two applications for research grants based on similar ideas: the use of strategy maps and scorecards to improve the use of Enterprise Resource Planning (ERP) systems. Here is a quote from one of the applications: “The annual cost of new integrated systems for enterprise resource planning and performance management in Sweden is several billion SEKs. Their impact on corporate and national competitiveness is considerable, yet we know little about how they are decided and controlled. Research so far has focused on the use of systems in management control; here we will investigate the importance of control for realising their benefits. We will study how a well-known method for strategic control – balanced scorecards (including strategy maps) – may be used to articulate and implement the strategies that motivate a new system. We will investigate their use prior to acquisition, during the introduction of the system, and when business activities are adapted to take advantage of its potential. Our objective is to increase the benefits firms and public administration get from their investments by improving their communication and control. Scorecards serve to bring the future use of systems into focus during implementation, counterbalancing a narrow focus on the project itself.” When writing the applications, we talked to several people involved in procuring and installing new information systems. On the surface, some seemed just to be modern versions of older procedures, making data more accessible and eliminating the need for double data entry. IT scholars have long talked about such benefits as ‘rationalization’. They are easy to agree on and monitor, and they would hardly require us to draw strategy maps or scorecards. It soon turned out, however, that simplified sharing of data had wider and less obvious benefits. In a hospital, instant access meant that treatment of patients could be speeded up, when there no longer was a need to wait for information to be fetched from other wards. This led to improved treatment results and more satisfied customers. Making doctors’ notes accessible to peers had complicated repercussions, and some were worried about the consequences. In theory they agreed that it should lead to improved decisions and future research opportunities, but this required more discussions. Current ERP-systems are meant not only to rationalize administrative processes, but also to enable new and improved business processes. For charting the logic of these and trigger discussions about alternative options and needed changes in processes and competencies, strategy maps seem a natural tool. It could be used for shaping expectations prior to investing in the new technology and for monitoring progress towards the hoped-for improvements. IS vendors should find it useful in sharpening their understanding of customers’ logic for using their systems, and as a consequence of this, improve their marketing. Recent research at Linköping University has described such changes in a variety of industries, including retailing, forestry, printing, and health care. (For a list see https://www.iei.liu.se/eis/research/it-och-produktivitet.) A common experience is that redistribution and redefinition of activities take place gradually over a fairly long period, and in ways that no one predicted at the start of this process. Organisations undertaking costly investments in new systems should obviously do what they can to mobilize ideas and insights from employees and others, in order to orchestrate the package of concomitant changes needed to create new and improved ways of working, and to achieve a shared commitment from everyone concerned for it. We still do not know if the research funds will look kindly at our requests for grants. In the meantime, we would be most interested to hear from you: have you attempted to draw strategy maps and/or scorecards for your new IT systems? Any reports might be useful for our future research! Please contact Professor Nils-Göran Olve (nils-goran@olve.se) if you have any experiences or opinions on the above. WHY MEASURE NUMBER OF NO:S A reoccurring comment regarding driver-indicators (as opposed to outcome-indicators) is that they risk focusing the organization’s interest on its means rather than its goals. Instead of maximizing revenue or profit employees might spend time on other, more embedded, activities addressed in the non-financial performance indicators, like performing personal development talks or producing content for the corporate website. Activities that do not guarantee to increase the financial results. To us, these comments and questions are important since they reveal something about people’s thoughts about management control in general and the balanced scorecard in particular. The purpose of the balanced scorecard is to assure that we are executing the business strategy, not only focusing on whether we are reaching our goals or not. Another question that seems to pop up when using driver-indicators, is whether they infuse sub optimization or not, i.e. that employees will spend more time and efforts delivering on the means rather than the goals (spending more time on internal activities rather than revenue generation). This line of reasoning underestimates the people in the company. All employees understand that any company depends on long-term profit. So, that is not the challenge. What is more difficult to understand in most organizations is how each unit contributes to the end results. Therefore, we argue, it is more important to describe and evaluate the means (strategy execution) than to pay single attention to the obvious goals of the company, like earning money and create returns to those who have invested in the company. Sometimes sales people are expected to be the most revenue-focused persons in the organization. Of course some are, but our main impression is that many are much more balanced than that. That many of them are very aware of the dynamics in the sales process, and the need to evaluate and manage activities that are driving future sales (i.e. the outcome of the sales department). Recently we listened to a seasoned sales manager talking about the art of selling. As he coached the juniors in his team and asked whether they had acquired any customers that day, and they replied that they hadn’t, his response was: “Well then, then you haven’t got enough no:s today!”. To the sales manager, the relationship between number of prospects and number of deals was more than a hypothesis. It was an empirical fact. Years of experience had taught him that it takes at least ten contacts to make one deal. And there are no short cuts in finding the buying customers. The only way to find them is to sort out those who do not want to buy. Hence, the more No:s you collect, the closer to a Yes you are. So, which indicator should you include in the scorecard: Number of Yes or Number of No. Most scorecard designers react instinctively: of course number of YES. YES is a positive measure, it focuses on our outcome; it is easy to understand; and number of YES immediately correlates with revenue and so on. Number of NO, on the other hand, is a negative metric. It focuses on our “failures” and there is a risk that our sales persons mistake the message: that the company cherishes No:s, and hence try to maximize number of NO:s. But, honestly! Is that likely? Do you really think that any sales person believe that the No:s are an outcome indicator. Never! Therefore we often promote such counter-intuitive (attention grabbing) indicators in the scorecard (cf. the praise for counter-intuitive content in the book “Made to stick”, which we reviewed in last Making Scorecards Actionable Newsletter, #32/2008). Referring to the quote from the sales manager above, there is an almost scientific belief in the relationship between number of customer contacts and number of deals. When the belief is this strong, it offers a great opportunity to create a sparkling indicator. Measuring number of YES will tell you something about whether you have reach your goal or not, but nothing about your journey to get there. It also means that the indicator will not change very often (only after every tenth customer contact). If you instead measure number of No:s you will see some other benefits: 1) you will have an indicator that grows (i.e. nine out of ten sales activities are captured in this indicator), 2) you will turn something that is perceived as a failure into an achievement (i.e. one step closer to a yes) and 3) you will be able to build a story about the sales process with reference to the actual performance (compare the sentence above “well, then you haven’t got enough no:s yet”). We believe that this is an example of an eye-catching indicator that makes the scorecard more sparkling. It is an indicator of what drives performance and it is an indicator that helps you turn something that is perceived as a failure into an achievement. There is no risk, regardless what some may say, that this indicator will sub optimize. Your people are not stupid! Of course they grasp the goal of the organization, generating revenue and returns. No one will trade a $ for a No. Hence, what your employees need to see, is that their efforts – what they do to reach their goals – are valued and appreciated. There is no risk that the sales people will try to maximize the individual indicator # of No:s for its own sake. But when you measure # of No:s it will continuously communicate your progress towards your goal, for example revenue, and make what was previously seen as a failure as one step closer to a YES. USING BSC TO RANK AND COMPARE PRIMARY CARE TRUSTS (PCT:s) IN ENGLAND In a recent study by PULSE – UK’s leading medical weekly magazine – 82% of the surveyed Primary Care Trusts have, or are developing, versions of the balanced scorecard system (65% of the trusts already have a form of balanced scorecard up and running). Many (33%) of these trusts – that already have balanced scorecard systems in place – are also publishing their results on the Internet so that existing and prospective patients can see how they perform. For more information about PULSE’s investigation, see http://www.pulsetoday.co.uk/story.asp?sectioncode=23&storycode=4119321&c=2 This is a slightly different use of the Balanced Scorecard than we proposed to the Department of Health in England some years ago (for more information about our project, see: www.dh.gov.uk/en/Managingyourorganisation/Humanresourcesandtraining/NHSworkforcescorecard/index.htm). In PULSE’s survey it seems like many PCT:s are using scorecards as an analytical tool to condense a number of (up to 20) indicators into one single score, ranging from A to C and also report this “rating” to external stakeholders. For several reasons we find this practice dangerous. To start with, the reason for using multiple indicators is that it is difficult, if not even impossible, to aggregate performance in different perspectives into one single value, in a valid way. The reason for using balanced scorecards, is that it balances different perspectives that all need to be described in their own merits. These perspectives should not be perceived just as input to compute an aggregate value. A second reason to think critically about these PCTs’ use of scorecards, is their decision to use them for external reporting. Of course, the information can be used to describe performance to external stakeholder, but before it is used for external communication, the scorecards should become accepted and institutionalized within the organization. It is not obvious that this is the case, especially since it seems like the scorecards are generically designed, such that they intend to be relevant to many different PCT:s. In our project with the Department of Health we argued in the opposite direction. We stressed the importance of developing locally relevant indicators, i.e. that the scorecards should be designed to support the individual PCT, in its efforts to execute its strategy, rather than suggest a generic set of indicators that were assumed to be relevant to all. Instead of generic scorecards used for external communication, we advocated PCT specific scorecards that should only to be used within the organization. STRATEGY MAPS AND SCORECARDS AT THE UNIVERSITY OF LEEDS The University of Leeds has become the first university in Europe to win recognition in the Balanced Scorecard Collaborative’s Hall of Fame. In 2004 Professor Michael Arthur was appointed Vice-Chancellor at the University of Leeds, and was assigned the task to develop a vision and strategy for the university. The goal was to become one of the world’s top 50 universities by 2015. These objectives, and how to get there, was described in a one-page strategy map, which was created in a bottom-up process where representatives from all over the university participated. The strategy focuses on integrating world-class research, scholarship and education and making a major impact on global society. More information about the University's strategy can be found at: http://www.leeds.ac.uk/strategy The effort to define and describe the vision and the strategy, as well as managing its execution, has delivered impressive results. Since the strategy map was launched, the university has jumped 50 places in world university rankings, research income has increased with 19% and student applications have rose 11.3%. University of Leeds’ systematic use of strategy maps and Balanced Scorecards has rendered them a place in the Balanced Scorecard Collaborative’s Hall of Fame. For more information see the press release here: http://www.leeds.ac.uk/media/press_releases/current/hall_of_fame.htm. DR. PETRI FEATURED ON THE DASHBOARD SPY CHANNEL The Dashboard Spy is a web community focusing on design and implementation of graphical performance reports, called dashboards. Even though a Dashboard does not necessarily need to rely on the Balanced Scorecard structure, we are happy to see that the Dashboard Spy have published some glimpses from a speech by Dr. Petri. Follow the link below to see the presentation: http://dashboardspy.magnify.net/item/5XD6HBKL01N67VY5 WHAT DID YOU THINK ABOUT THIS NEWSLETTER? Please, help us improve this Newsletter. Follow the link below and give us some quick feedback (only three questions) on the Newsletter: http://www.surveymonkey.com/s.aspx?sm=B0tr4f6y63_2bsIOdabWg7iQ_3d_3d 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” (which has been translated into the following languages: Swedish, Spanish, Russian, Japanese, Chinese and Thai). Also make sure to check www.makingscorecardsactionable.com out, to get information about our seminars, to evaluate your organisation’s BSC skills in our computerised BSC Analyser and to download presentations from the document archive. |
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