The primary role of scorecards in organisations is to articulate the company`s strategy, and through this, identify and map key performance indicators (KPIs).
If the strategy is to grow the business, for example, the key principle of the scorecard is to communicate how to grow that business, and to establish what the components are that feed into the strategy. This could be anything from acquiring new customers, getting a bigger share of existing customers` wallets, or investing in R&D for new business areas to grow into.
While the main purpose of scorecards is to state what the organisation`s strategy is, it also has to indicate what is being done to achieve it, and measure this through feedback. Scorecards need to be acted on if they are to offer any value.
While many are going through the exercise to define scorecards, the typical route taken is to bring in external consultants who can assist the organisation in breaking the strategy down into scorecards.
This is mainly dealt with on a conceptual level. It`s usually a case of, "if you want to achieve your strategy, this is what you need and what you need to measure". But many of these metrics are simply not definable in a practical sense. This creates a disconnect between the theoretical and the practical. How do you fill this gap?
The more traditional balanced scorecard (BSC) approach defines quite rigidly a number of perspectives that you should have in an organisation, such as financial, customer, learning and growth, and internal processes. This is offered as a means of gaining a "balanced" view of the organisation, with elements of each of theses perspectives needing to be included in the strategy for it to be successful.
There is essentially nothing wrong with a set of pre-defined scorecard perspective. They offer a context, or good start, particularly for smaller organisations that might not be able to afford a strategy consultant or simply prefer not to use one.
But, not everyone wants to measure their business in this way - however, people still see the value scorecards have to offer. An initiative for scorecards may, for example, come from HR, but the organisation may not wish to break this down into pre-defined perspectives but, rather, specific operational areas relating to HR, and measure performance against that.
Scorecards are also iterative, in that they change all the time, as the strategy changes. Metrics often change in importance, or get acted on and superseded by others. For these reasons, scorecards need to be dynamic, and adhere to an implementation methodology that will take it from the conceptual to the actual.
There are many ways in which an organisation can define its own levels of scorecarding. If you don`t know where to start, opt for a proven methodology, particularly where high-level consultants are not involved.
Organisations are best advised to appoint an internal scorecard champion. Also, determine what it is you are going to measure, but look for measures that cross over the boundaries of the organisation. Scorecards are also frequently a process of trail and error. Sales would typically measure sales, while logistics might want to measure stock losses or time to delivery. To put these elements into a singular strategy, you might want to put a new metric in place to measure successfully delivered and paid-for stock, for example.
The greatest drawback to scorecards in the past has been cost. It continues to be perceived as an expensive initiative, but this is mainly due to a hangover from the balanced scorecard era. Corporations already have a number of ways in which they measure themselves, and the approach to scorecarding that will reduce costs, is to define scorecards internally, based on existing metrics, and then build on them.
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