Balanced Scorecards Part 1, Route To Better Business Alignment

An article by Neil Walker, Principal Consultant at Fox IT. ‘Balanced Scorecards Part1, Route To Better Business Alignment’. This is part 1 of 3 articles about better business alignment through the use of balanced scorecards.

Download this article on scorecards part 1

An IT Scorecard is one of the most effective means to achieve IT and business alignment.

The Balanced Scorecard is the most recognised form of this and became popular in 1992 via an article in the Harvard Business Review, based on the excellent research and experience of Robert Kaplan and David Norton.

The fundamental premise of the Balanced Scorecard approach is that the evaluation of an organisation should not be restricted to a traditional financial evaluation, but should be supplemented with measures concerning customer satisfaction, internal processes and learning & growth. Results achieved within these additional perspectives should assure future financial results and drive the organisation toward its strategic goals, while keeping all 4 perspectives in balance.

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The IT organisation has traditionally been treated as an entity separate from the business, with IT management focused on the daily effective and efficient supply of IT services and IT operations.

Many now recognise that that the relationship is broader and needs to concentrate not only on performing, but also on transforming IT to meet present and future business demands. IT organisations are implementing structures, processes and relational mechanisms to forge closer ties between IT and the business. If you are one of these it would be beneficial to know how well you’re doing and if:

  • You’re doing the right things;
  • You’re doing them the right way;
  • They are being done well;
  • You’re reaping the benefits;
  • You’re adaptable enough to grow and learn; and
  • You’re recognising opportunities and acting on them.

I believe the Balanced Scorecard can answer these questions. It is a constructive management process that fosters positive change, builds links to business strategy and enables the business/IT relationship to be mutually beneficial. The benefits to be gained from implementing the Balanced Scorecard can be considerable.

To the Business To IT Both
Proof that IT is listening Direct feedback from business customers enabling a balanced view of strategic measures IT understands customer business and is a good fit within the organisation
Continuous service improvement (to match rising expectations!) Understanding customer perception of service and thereby focussing attention in the right areas IT understands customer business pressures and aims
Business customer satisfaction from business processes working well as a result of IT performing well Objective measurement of IT service IT listens and responds to feedback
Value for money achieved and demonstrable Cost management balanced with quality of service Price feels like value for money with excellent service delivery
Enhanced relationship Proactive service management. Understanding of customer perception and what’s important Competitive advantage
Ability to influence IT strategy Staff motivation Easy to do business with

The risks of not taking this approach are:

  • No change to status quo: boring, missing business opportunities
  • Low return on investment achieved. The business challenging IT costs
  • ‘Us and them’ attitude. Barrier building
  • Customer dissatisfaction

My first real exposure to Balanced Scorecards was in the late 1990s where I saw the benefit of aligning IT activity with business priorities and motivating IT teams to achieve specific objectives. Whilst I have been involved in designing and implementing Balanced Scorecards in organisations since then, my experience as a consultant visiting many enterprises, is the use of the Balanced Scorecard is not as widespread as a performance measurement and management system as many would claim. While IT metrics and KPIs are common place and measure performance from an IT perspective, there is less evidence of executive management, customer or end user viewpoints being evaluated.

So why is it not more widely adopted? Possibly because the original concept is perceived as too rigid or the set-up process too complex. It could also be because it touches on qualitative measures and expectations and is therefore seen as ‘subjective’. Or simply there could be those who see Balanced Scorecards as an academic exercise rather than a workable tool!

Balanced Scorecards are neither hard nor difficult to introduce into an organisation and to its customers and they can be up and running quickly. It requires high-level commitment, planning and preparation meetings; directors, managers and service people available for training; scorecard design experience and customers who are willing to participate.

So how do you get started?

In designing the content of the scorecard, the business strategy should be well understood and reflected in the subject categories chosen for scoring.

The Balanced Scorecard differs from other service metrics because it records customer perception with ratings for importance and the service performance. It also has many possible variations for use, content, frequency and interpretations of the results…….but more of that in my next post.

Active engagement with key players from both business operations and IT to focus on important strategic service delivery is far more successful, particularly when carried out on a regular basis. It is equally important to put the information gained to work by setting targets and objectives that are stretching and in line with business strategy. The people who participate in the scorecard interview should be selected carefully to maximise the benefit to both organisations and the scorecard should be constructed with equal care. The contents of the scorecard and the analysis of the information collected will be key to being able to measure these elements and to gain the benefits for business and IT alike. Finally, the Balanced Scorecard management process enables the anticipation and identification of satisfying customer requirements profitably.

Strategic alignment between IT and the business relies on continuously defining and validating the IT value proposition. It requires shared and communicated responsibility across both parties, good relationships and leadership structures such as Steering Committees and Management Boards.

I’d like to see the Balanced Scorecard grow as an IT management reporting system that feeds back into the strategy, as it seems the most effective means to achieve IT and business alignment.

My next post ‘Balanced Scorecards – Variations on a Theme’, will look at ideas for creating Balanced Scorecards in different situations which are more meaningful for the business and IT stakeholders involved.

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