48. Business scorecards

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Key points

Business scorecards were developed to try to counter-balance the preponderance of financial measures used in companies, by refocusing management attention on the importance of the processes and behaviors that generate those financial outcomes - visionary leadership, committed customer relationships, robust internal processes, the quality of the workforce, and new product development.

Business scorecards map and communicate the strategy of a company (or a department within a company), from the overall business strategy to the individuals' work expectations, so that the management can understand the business and how it is performing. They are time-consuming to develop, but many of the companies that have adopted them have out-performed their peers. They are particularly relevant to corporations focusing on improving performance as, not only do they help people to understand their role within the organisation, they also identify how well each individual is performing.

A business scorecard can be especially helpful if you are trying to align the organisation to a new brand.

Topic areas

The three most famous business scorecards are:

• the Balanced Scorecard, developed by Kaplan & Norton
• the Baldrige Award assessment model
• the EFQM (European Foundation for Quality Management) model

If you combine their topic areas, the main elements that you should be mapping in your strategy are:

1. Wealth development - what are the financial outcomes you are looking for?

e.g.

• Sales
• Profits
• Economic profit/value added
• Productivity
2. Customer intimacy - what outcomes do you want from your customers?

e.g.

• Market share (but difficult to measure except in very established consumer markets)
• Customer loyalty
• Customer retention
• Recommendation
• Awareness, familiarity, favorability
• Your key brand attributes
• Response to the communications mix (e.g. taking up promotions)
• Weighted distribution
• Behaviors indicating the customer is at risk to competition
• Recovery of lost customers

3. Process development - what are the key processes you have to get right?

e.g.

• On-time complete delivery
• Speed and effectiveness of response to complaints
• Cycle time from taking order to delivering the product
• Cycle time of developing customised products for key customers
• Parts per million product defects
• Speed of calling back the customer when a message is left
• Effectiveness of supplier management

4. Organisational renewal - how are you going to make your company fit for the future?

e.g.

• Speed to market of new products/services
• Leading edge technologies
• Anticipation of market trends
• Effectiveness of network of technology/service partners

5. People - do you have access to the skill sets you need?

e.g.

• Employee satisfaction
• Competence of employees
• Retention of valued employees
• Ease of recruitment of skill sets you require

6. Leadership - do you have inspirational leadership of your organisation?

e.g.

• Effectiveness of strategy development
• Ability to change the organisation to deliver the strategy
• Effectiveness with key institutional stakeholders (e.g. share/stock holders, government, journalists)

Setting up a business scorecard

The main issues to be aware of when developing a business scorecard are:

• organisational intent - the scorecard should be based upon the business strategy. The business should be designed to deliver the strategy, & the scorecard should model the business. If there is no agreed business strategy, you should not be building a business scorecard
• time - the scorecard lives in the present, but is predictive of the future & cognisant of the past
• the stability of the environment - no business lives in a vacuum. The scorecard has to have knowledge of trends in the environment surrounding the business, & what impacts these will have on the business
• knowledge generation - the scorecard is a means of knowing the business, but must also reflect & improve upon that knowledge

So, first start with your business strategy:

• What are you trying to achieve?
• How do you expect to achieve it?
• What does success look like?

Define the processes at which you need to excel - the core capabilities of your organisation:

e.g.

• Financial management
• Knowledge management
• People management
• Physical asset management
• Production management
• Logistics management
• Innovation management
• Market value management

Then take the outcome measures (what does success look like?), the input measures (of the processes where you need to excel), and combine them in a business scorecard framework:

1. Wealth development
2. Customer intimacy
3. Process development
4. Organisational renewal
5. People
6. Leadership

Some final tips:

• Initially, use as few measures as you can get away with, otherwise your organisation will get very confused and go around measuring everything
• Try to define measures that you are not already measuring. The great temptation is to measure the things that are easy to measure, rather than the things that need to be measured
• Try to link individual work expectations to the overall strategy. Business scorecards are effective because they communicate what your organisation expects from each individual, and why it is important
• Pay most attention to areas where you have the greatest successes and the greatest failures. Build on your strengths. Neutralise your most significant weaknesses

Business (& therefore brand) scorecards are self-evidently highly complex & problematic. Identifying & measuring the right business indicators is difficult & time-consuming. The process itself is both political & costly. The measures need to change to reflect the business model. But some of the resulting business performance is extremely impressive.

For further information, please contact enquiries@mudvalley.co.uk

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