As an executive, corporate scorecard management is one of the most powerful and practical tools you can employ to leverage assets to build a unique business model capable of generating a competitive advantage. Everyone wants to find the easy button on picking just a few transformational metrics, but the reality is that simplicity is the ultimate sophistication in strategy and something you earn through organizational experience.
The reasons to spend the energy doing this well are plentiful:
1. Strategy and corporate governance both rely heavily on the effectiveness of the corporate measurement framework.
2. People at all levels need to understand your strategy before they can engage in it; you need people at all levels to engage in your strategy, or you have little control over the customer experience.
3. What's measured gets done (even if it's not always in the way you initially expect).
4. Holding people accountable for REAL and challenging performance gaps in areas they know are meaningful, and tying variable compensation to strategy, creates the sense of necessity that is the mother of invention.
5. You can't get people to do what you can't or won't take the time to describe.
6. Every competitive strategy and value discipline requires a different scorecard, in addition to culture, business model, organizational competencies, etc. Choosing the wrong measures drives counter-productive decision-making at all levels. The opportunity cost of having strategy-neutral measures vs. those that drive alignment to a set of differentiating activities and improvements is truly significant.
7. If you measure only from financials, you don't fully understand your business. Financials tell a story about what happened, but customer, market, internal, and people measures complete the story by giving insight into why and how.
8. Strategy is supposed to be largely about leveraging assets to build a UNIQUE business model (capable of generating a competitive advantage through value discipline adherence) that is capable of creating a unique value proposition.
9. When the focus isn't on strategy, it often defaults to operational priorities, with the silent assumption that there is only be one way of building an operational model. Adaptation has to be focused within the context of longer term strategic objectives.
10. Assuming that your whole organization knows what is in your head is almost always a mistake, one that is exacerbated proportionately to the size of your organization.
What you want is to measure all of the things that drive your strategy, and nothing that doesn't. A lot of traditional corporate measures exist to justify past behavior. They don’t speak to HOW your business will manage to win. If they’re not linked to the value discipline or the desired customer experience, you don’t really know why you’re getting the results you’re getting. It’s the difference between knowing you're profitable and WHY you're profitable, and how you can strengthen that position.
Building your Scorecard - Where to Start:
1. Start at the top, and build a solid strategic framework (vision, mission, values, value discipline, strategy map). Your measurement and the insight it creates will never be more sophisticated than your strategy management model.
2. Measure everything on your strategy map, and nothing that isn't. Anything outside the strategy map is strategy-neutral (potentially a distraction), unless it exists in a cascaded operational scorecard. Don't just challenge measures, challenge operational activities that don't align.
3. Develop a control process for when measures are allowed to change, for the right reasons. This protects you from those with influence simply killing measures they don't want to be held accountable for.
Such as: 1) a strategic objective changed - if your understanding of the map changes, so should the measure 2) a measure is driving unexpected behaviours - replace the measure with a better one 3) a more effective measure has been discovered - run it in parallel and test it 4) in the hunt for transformational measures, the theory behind leading/lagging relationships has been proven to be incorrect - challenge the map and metrics.
4. Involve senior and operational subject matter experts in the project of defining a consideration set of metrics.
5. Demonstrate executive accountability for results for a period of time prior to cascading onto performance plans at lower levels.
6. Accept that you'll probably measure more things initially than you will once you have tested your theories around leading and lagging inter-dependencies.
7. Use the scorecard to tell the story of your strategy by building multiple years of targets that align with long-term objectives to show where it's going, and pair that with explanations of what that matters.
8. Instill a focus on learning from data, and valuing the discovery of opportunities to improve, rather than simply for variable compensation or "beating people up" on performance.
9. Document the drivers of each measure, a complete and audit-able definition, and historical results.
10. Develop criteria for what makes an effective measure prior to adopting them: (Anticipated to drive behaviors that support the strategy and desired customer experience, Timeliness / can be acquired at a useful frequency, Accurate conclusions can be drawn from the results, Is actionable, The results are material to your success (doesn’t act as a distraction from more important issues), Plays an appropriate part in an effective blend of leading and lagging indicators, Is reasonably easy to get / isn’t prohibitively expensive, Is intuitive enough for people to know how it applies to the business, easily understood, Is repeatable and consistent, Allows peer comparisons (where meaningful)
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About the Author
Kirk Leverington is an 18 year veteran of the Saskatchewan credit union system and a long-term corporate strategy manager. Combining a belief in challenging leaders to think strategically with an expert understanding of systematic approaches to implementation, Kirk has played an integral role over the years in supporting organizational change.
As the manager at SaskCentral of National Consulting, Kirk uses his experience to guide the business team in offering enterprise risk management, deposit and lending support, ICAAP, capital planning, strategic and operational planning, audit, and electronic forms to Canadian credit unions.
A version of this blog was first published here: https://www.linkedin.com/pulse/building-balanced-scorecard-works-kirk-j-leverington-mba-cmc?trk=mp-reader-card
