The Convergence of Scorecards, Dashboards and Business Intelligence

Transcription

1 The Convergence of Scorecards, Dashboards and Business Intelligence By Brett Knowles President pm2 Performance Measurement and Management

2 Words like Scorecards, Dashboards, and Business Intelligence have been coined by various thought leaders over the years to describe parts of the management system the tools and resources that management uses to guide the organization. With the evolution of easily available tools, such as those offered by Actuate, the distinction between these elements is disappearing, and what is emerging is a management system that incorporates each of these components into a single solution. Strategy-Driven Organizations Despite the significant time and energy that goes into strategy development at most organizations, most have little to show for the effort. Research suggests that companies on average deliver only 63 percent of the financial performance their strategies promise. This strategy-to-performance gap is all but invisible to management because the traditional navigation systems are looking in the wrong direction. Leaders then make the wrong decisions in their attempts to turn around performance, opting to change direction when they really should focus the organization on execution. The result: wasted energy, lost time and continued under-performance. Imagine an organization embarking on a twoyear growth strategy say Year One growth is accomplished through penetrating new markets. As the year unfolds, management, the Board and shareholders are looking at the measures they have always looked at: EBITDA and profitability. Both numbers get worse and worse with every passing month. When they reach for new metrics like revenue, they still see no change. Before long, the Board and the Executive get cold feet, declare the new strategy a failure and call for a revised strategy that the organization can execute. Yet, they might have seen a significant up-tick in customer contacts from the new markets (web page hits, inbound calls, new contacts in the CRM, etc.), and propensity to purchase from those new markets (increased pricing inquiries, repeat sales, requests for proposal, etc.) if only they had looked at a different set of numbers. They might have accomplished that if only the organization had changed its Key Performance Indicators (KPIs) to Strategy-Linked-KPIs (S-KPI). S-KPIs, that is, that: Matched the new growth strategy; Included leading, non-financial navigational metrics; Had established targets; Were weighted based on strategic and tactical importance. Their strategy was taking hold, but not yet causing changes in the traditional (lagging) measures. [ Figure 8.1: Briefing Book. ] 2

3 How Should Management Look at This Organization? To be effective, management needs to see a high-level view of the entire organization. Think of looking out the window of a jet airplane at 30,000 feet: you can see the broad expanse of the horizon. From this vantage point, management can see plumes of smoke rising from the various fires across the organization. But they need Strategic Tools to enable them to prioritize which fire should get their attention first. Once they have identified which fire needs their attention, they want to (metaphorically) drop to 20,000 feet. They now need Operational Tools to gain an understanding of what is causing that fire. Once they gain sight of that, management can drop down to 10,000 feet. Using Diagnostic Tools they now need to become directional towards solving the problem at hand. Finally management needs to get to ground level. They need Analytic Tools in order to become prescriptive in putting out that fire. There are some key characteristics about this approach to managing the organization: Each level is tightly linked to the strategy both the direction and priority; It s aligned from top to bottom, following strategic themes, but is enabled through different management levels of the organization; It uses different information in different layouts; It can compare the current period to any period of time last year, last month, etc. with the ability to compare current performance to anticipated results in the future. Strategy is the organizing structure in this management system, which is why organizations that follow these practices are called Strategy-Driven Organizations. [ Figure 8.2: A Dashboard. ] 3

4 The Strategic Layer: Alignment, Prioritization, Strategic Execution Balanced Scorecards have emerged as the best practice in capturing strategy and making it available for communicating, monitoring and managing continuous improvement. Using the foundation of a strategy map, Balanced Scorecards: Capture the strategy through a few Strategic Objectives; Reflect the primary focus of the Strategic Objectives through perspectives; Describe management s hypothesis around the cause-and-effect relationship of the Strategic Objectives with arrows; Formalize the year s strategic priority of each Strategic Objective through weightings; Communicate performance through strategic performance indicators; Provide one view of the truth a single, aligned way to look at the organization and how it is performing; Underpin everything management does, from setting the strategy and measuring and managing performance, to setting driver-based financial and human capital plans, organization design, accountabilities, compensation, business analytics, and intelligence and continuous improvement. This strategic view of the organization may cascade several layers down to departments, regions, brands, customer groups, etc. These cascaded strategy maps and Balanced Scorecards achieve the same goals as above, but within the scope of each area. It is important to note that as these cascades are created, the consolidation formulas must reflect the relative importance and correct performance aggregation. There are five types of Scorecards: Valuation, Navigation, Compensation, Calibration and Evaluation. Valuation Scorecards are used by external stakeholders to better value the organization in a way that recognizes and describes the value added by intangible assets Human Capital, Customer Capital and Structural Capital that financial accounting does not accurately reflect. This calls for driver-based and activity-based formulas. Internal communication of strategy and performance comes through Navigation Scorecards. Navigation Scorecards tend to use process measures sourced from transactional systems. The results should be indexed against a comparative, such as Target or Last Year, so that proprietary performance information is not disclosed on the scorecard. Compensation Scorecards demand significantly more accurate data and usually focus on outcome or lagging measures. The formulas here need to be simple and transparent, and align with the organization chart and personal/team accountabilities. Frequently only parts of the overall scorecard are used for compensation purposes. Calibration Scorecards support activities around calibrating your organization against strategically similar organizations in the same or other sectors (benchmarking). Calibration activities require organizations to understand which parts of their strategy are similar, and hence comparable, to other organizations, and are dependant on what data is actually available from those other organizations. The formulas here must be consistent with how the comparative data was calculated and aggregated. Evaluation Scorecards are used to communicate with outside stakeholders. Their indicators require more validity and therefore are provided by things like customer and employee surveys. The data is very infrequent (hence not usable in a Navigation Scorecard), but more appropriate for outsiders use. The bare minimum of indicators are used with simple formulas and consolidation processes. It is important to note that each of these strategy models use the same strategy map and weighting it is just the indicators and formulas that change to reflect the specific application of the scorecard analytics. In some cases multiple versions of the strategy map may be maintained for scenario planning purposes allowing management to consider the performance implications of different strategies. The Operational Layer: Critical Success Factors, Relationships The Operational Layer is the 20,000-foot view: a view made up of the Critical Success Factors (CSFs) that directly impact the performance of each Strategic Objective. This view allows management a single clear view of the network and dynamics across the mix of cross 4

5 [ Figure 8.3: Sample Strategy Map. ] functional/cross-process CSFs. Management can only gain an understanding of where performance issues are coming from by seeing the broad view of strategic performance. This complete view allows the reader to form and test hypotheses about the possible cause-andeffect relationships between the CSF and overall performance. This view also allows leadership to see and test their hypotheses around CSFs and their strategic impact. It is important to note that CSFs are not used for diagnosing the problem, only for understanding where the problems originate from and what might be impacted by the observed performance. Strategy-Driven Tactical and Analytic Dashboards Once management understands where the performance is coming from, they need to drill down to the 10,000-foot level, with strategic dashboards. Here the performance drivers that underpin each CSF are displayed to provide a diagnostic tool that enables management to make directional decisions. Strategic dashboards have a number of key characteristics: They show the performance drivers that underpin the CSFs; The drivers are shown within a strategic context, reflecting their contribution to strategic priorities and performance goals; The information on each dashboard comes from across the organization, containing both leading and lagging, and financial and non-financial, measures. Strategic dashboards provide additional insight into strategic initiatives, KPIs activities, etc. Their formulas reflect the underlying performance realities of the organization in fact, between the drivers and these performance formulas, predictive scorecards and driver-based plans are created. Context-Sensitive Business Intelligence Analytics provide the ground level of management understanding, enabling management to become prescriptive in its directions. At this level we need on-the-fly root cause analysis of performance issues, beyond chasing the red measures, through context sensitive Business Intelligence analytics. In this environment, users don t need to scour enterprise data to get to the data - by using Google, for 5

6 instance. The links are already established to support ad-hoc analysis around performance hypotheses. As users enquire down established themes, they can explore the knowledge and frameworks developed by others in the organization to investigate what has been happening. As they develop new performance models, these too can be captured in order to contribute to organizational learning and knowledge capital. The Management System These individual levels and reports integrate to provide that one view of the truth that the organization needs. It is important to note that this one view does not mean that everyone looks at exactly the same thing; as one drills down on the information, the format of that information shifts to suit the issuetype and mindset of that area. A Strategic Objective, like Market Penetration will be enabled by a number of Operational Objectives, one of which might be Price Leadership, for example. In turn, that would be supported by a number of Tactics, one of which might be Undercut Price. This tactic will be executed through a number of tasks, one of which might be Daily Monitor Prices. Perhaps the most defining characteristic is the timespan of the information. As the issue is drilled down, the timespan of the data becomes shorter and shorter. Senior Management typically looks out, say, one to five years ahead. The next level down will look one to five quarters ahead, while at The Performance visit the Management Actuate Dream Performance Team Management web site at the next level down it will be one to five months, etc. The entire system is made up of a multi-dimensional model, which allows organizations to slice and dice information based on parameters that make sense to them, for example department, by product/brand, by region, by customer segment, etc. The Operational View may have hierarchies built along these lines, or drill through other frameworks like Six Sigma, etc. Dashboards, of course, reflect the view at hand, such as data overlays on top of maps, process charts or areas. By combining the top-level Management View and lower-level root-cause information typically found in dashboards and reports, what you see emerging is a complete management system. It combines toolsets tailored to different management levels, integrating what were once siloed applications and delivering them in a single unified solution. The result is one version of the truth, but delivered in a context that s sensitive to users. Executives get the dashboards that they want in the way they want, while front-line users have access to root-cause details linked to higher level scorecards, which helps them understand the issues. At every step, everyone knows what s happening. Brett Knowles is a long-time thought leader in the Performance Management space, starting in the late 1980s when working alongside Drs. Robert S. Kaplan and David P. Norton. Mr. Knowles has completed over 2,000 scorecard engagements in virtually every sector and around the world. Four of his clients have been awarded the Balanced Scorecard Hall of Fame distinction by Drs. Kaplan and Norton. He can be reached at Brett.Knowles@BalancedScorecard.net. About BIRT Performance Analytics Actuate BIRT Performance Analytics delivers businessuser driven discovery, analysis, and Performance Improvement at all levels of an organization on a single platform. Powered by ActuateOne and available both on-premise and in the cloud, BIRT Performance Analytics provides interactive dashboards, in-memory analytics, and scorecards delivering rapid time to value from business discovery to decision. For more information, Actuate Corporation 2207 Bridgepointe Parkway Suite 500 San Mateo, CA Tel: (888) Actuate Performance Management Center of Excellence 150 John Street, Suite 600 Toronto, Ontario, M5V3E3, Canada Tel NA: (800) Tel INT: +44 (0) pmondemand@actuate.com 6