BALANCE SCORE CARDThe Balanced Scorecard model offers a way for a corporation to gain a wider perspective on its strategicdecisions by considering the impact on finances, customers, internal processes and employee learning. Theanalysis takes into account financial and non-financial measures, internal improvements, past outcomes andongoing requirements as indications of future performance. IT departments are applying the model to helpkeep e-commerce, supply-chain management and other business-focused projects on track.
When US West Inc. in Denver recently undertook an e-commerce initiative, the company put the Balanced Scorecard model to work, says Rod Mack, the company's general manager of software development. Based on the theory that for every action there's an equal and opposite reaction, the model helps companies determine what impact a potential change will have on the rest of the organization, looking at it from four perspectives: finance, customers, internal processes, and innovation and learning for employees. "For our e-commerce initiative to be successful, it wasn't just the e-commerce platform," says Mack. Starting with that customer-facing goal, the Balanced Scorecard approach defined goals in other areas: internal processes, employee impact and finances, he says. For US West's 4,500-person information technology department, that meant getting the associated computer systems Y2K-compliant in the internal processes category, implementing an IT career structure in the employee learning category and meeting overall budget commitments in the financial category. Business Beyond Finances Some organizations like US West are beginning to accept Balanced Scorecard analysis for assessing roll outs of new technology. Instead of focusing solely on a company's financial goal, the model requires decisionmakers to consider the impact of strategic decisions on staff, customers and the organization's function "In the past, a lot of these might have been the same goals, but it's easier to organize your thoughts around this. We even used Balanced Scorecard as the framework for all our 2000 planning," Mack says. The regional Bell operating company has been using Balanced Scorecard for the past year and a half to gauge successful project implementations, he says. Robert Kaplan and David Norton, who coined the term in a 1992 Harvard Business Review article (see “Balanced Scorecard’s Origins”, created the Balanced Scorecard concept. Many Fortune 500 companies use it to assess the full impact of their corporate strategies, ferreting out any unintended consequences to their workforces, their customers or their bottom lines that could occur when they alter a production process, for example. "When companies look at setting strategies and goals, they classically fall into setting financial objectives: increasing revenue or return on assets. But Balanced Scorecard says that's looking in the rearview mirror," says Ken Rau, director of the information risk management practice at KPMG Peat Marwick LLP. He uses the methodology to advise companies on how to avoid negative consequences when implementing strategies. "Balanced Scorecard says companies need to be proactive. In addition to looking at the financial metrics, they should look at how they're serving customers, employees and internal processes," says Rau, who worked with Norton in the late 1980s. "You take each objective and ask what the specific initiatives to accomplish are. What about the people, the processes, the customers and the financials? You figure out how to measure each of these areas. It's not what to do from one vantage point — the almighty dollar." In addition, IT department could use Balanced Scorecard to assess the impact of a corporate strategy to enter a new business line and to determine how IT could link itself to support the parent company's goal, Rau says. Alternatively, IT could use the model to track its own initiatives, such as how moving to a different hardware platform would affect the department's processes, budget, training requirements and the user groups it serves within the corporation. "While an IS department can make significant improvements as a separate department, the IS department is really the foundation for the entire company's Balanced Scorecard effort," says Jim Brigman, co-founder and chief operating officer at Acorn Systems Inc. in Houston. Brigman received his master's degree from Harvard University under the tutelage of Kaplan. Measurable Goals Brigman says IT managers developing a Balanced Scorecard for their projects should take the following steps to develop measurable goals in each of the model's four areas of concern:
"Any company implementing the Balanced Scorecard that has not made the IS department central to this task has missed the boat," Brigman says. "The IS department controls the company's data. They are the crucial group responsible for transforming data into information." Instead of being a planning tool used only by executive management, the Balanced Scorecard model can clarify roles and expectations at all corporate levels, Mack says. "From each executive director to each area manager, they can see how their specific goals tie to the entire organization's software management objectives," says Mack. "I think it's a pretty powerful tool for setting the organization's goals." Balanced Scorecard Origin The originators of the Balanced Scorecard concept are Robert S. Kaplan and David Norton, co- authors of The Balanced Scorecard: Translating Strategy into Action (Harvard Business School Press, 1996). They coined the term "Balanced Scorecard" in a 1992 article for the Harvard Business Review. The article, "The Balanced Scorecard: Measures that Drive Performance," is available at the Harvard Business School Publishing |
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