By Steve Czerniak, Subject Matter Expert
SCORE of Southeast Michigan
A frequently asked question is “What should I measure?” Robert Kaplan and David Norton published a book on the “Balanced Scorecard” (Kaplan, 1996). This tool can help a business operator understand the answer to that complicated question.
The Balanced Scorecard has quadrants to answer the following directive inquiries:
FINANCIAL: “to succeed financially, how should we appear to our shareholders?”
CUSTOMER: “to achieve our vision, how should we appear to our customers?”
INTERNAL BUSINESS PROCESS: “to satisfy our shareholders and customers, what business processes must we excel at?”
LEARNING & GROWTH: “to achieve our vision, how will we sustain our ability to change and improve?”
Here’s what an example scorecard might include:
An annual measure for an objective should be shown as a target. However, in order to understand a status, during any month or week of the year, the partial target, expected at that time, should be shown along with the actual status figure. Not every annual measure can be assumed to be linear. Therefore, the May status may not be 5/12ths of the annual target.
In every case, the measures must be aligned with the Vision, Strategy, and Objectives of the Business. One must question the rationale for any initiative that is not fully aligned. All of these measures should be connected.
It’s about greatness. Great employees performing within great processes produce great products that satisfy customers who generate added revenue and great profit for the company.
From my own applications of the Balanced Scorecard, I’ve learned the importance of making the information easy to see and from which to derive meaning. This can be done using a combination of numerical data and graphics. Just make sure that everybody agrees on the symbol and color convention selected. Trend arrows are part of this solution:
UP - the measure is getting better
DOWN - the measure is getting worse
SIDE-TO-SIDE - the measure is staying the same
Color is the next part of the solution:
RED - Bad - Greater than 10% off target
YELLOW - Caution - Less than 10% off target
GREEN - Good - On target or Within 10% better than target
BLUE - Very Good - More than 10% better than target
CAUTION: More people are color blind than you think. Use tools to help these folks get the data. In some cases, it’s as simple as representing the colors with the initials R, Y, G and B along with using the color.
It is highly unlikely that a generic example will directly be applicable to a specific business. A business operator should engage a professional with significant experience in using the Balanced Scorecard.
The follow-on book to the Balanced Scorecard is “Strategy Maps” (Kaplan, 2004). In their book, Kaplan and Norton present this interesting and valuable take-off from the Balanced Scorecard. The way I have applied it is to turn the Balanced Scorecard sideways. It works best when one can develop a “wiring diagram” connecting Learning and Growth actions to Internal Business Process, Customer and Financial. This interconnection builds an incredible traceability and rationale. A famous example is from Southwest Airlines.
***** On a Related Topic: MEASURE OUTCOMES, NOT JUST OUTPUTS OR ACTIVITIES *****
Benjamin Franklin warned us to “Never Confuse Motion with Action.” I’m going to go one step further and caution that we should not confuse doing the work with delivering product or positively affecting the business.
I’ll us the words “Activity,” “Outputs,” and “Outcomes.” The following table shows the definition from the Oxford English Dictionary, my adaptation of that definition (in this context), and a few definitions to illustrate the differences.
ACTIVITY - “The condition in which things are happening or being done” (OED) - Tasks performed to do the work - Examples: pages written, meetings attended, estimates completed
OUTPUTS - “The amount of something produced by a person, machine, or industry” (OED) - Products delivered - Examples: books finished, changes implemented, proposals delivered (we assume on time)
OUTCOMES - “The way a thing turns out; a consequence” (OED) - A business result - Examples: books sold, revenue, profit, effect on employee morale or opinion, contracts won
Many employees like to point out “I worked hard.” News flash! We are all expected to work hard. That’s a basic expectation of having and keeping a job. Frankly, you don’t get ahead for meeting the basic requirements.
My personal experience includes several employees who tried to tell me about how exceptional they were for attending so many meetings.
Meetings are an activity. Meetings, done correctly, are great places to make decisions and get the guidance needed for the attendees to get some great work done … after the meeting! If you’re completing your personal work while attending a meeting, you cannot be paying attention and participating in the meeting.
Completing a work product is important. Every employee is expected to complete work products. The output of one employee becomes input to another employee or to the eventual customer. However, the most important thing is the business consequences and results. It’s great to deliver a finished book or estimate but if they don’t generate revenue and profit, they’re not very valuable to the business. In fact, they’re a drain on overhead. What’s the primary purpose of a business … to make money.
This wisdom can be helpful in identifying and implementing business measurements as well as individual employee goals and objective. Leadership and investors like outcomes.
Kaplan, R. S., Norton, D. P. (1996) The Balanced Scorecard: Translating Strategy into Action. Harvard Business School Press. Boston, MA.
Kaplan, R. S., Norton, D. P. (2004) Strategy Maps: Converting Intangible Assets into Tangible Outcomes. Harvard Business School Press. Boston, MA.
Oxford English Dictionary (2019). Retrieved from the Online web page at http://www.oxforddictionaries.com
About the Author
Steve Czerniak retired after a successful 37-year career as a leader and innovator. The last fifteen years were a series of opportunities that honed his skills as an internal consultant and “change agent.” In retirement, he is a volunteer consultant and a SCORE Subject Matter Expert for the Southeast Michigan chapter. His personal volunteer objective is to “derive personal satisfaction from helping others, and the organizations they operate, to develop and prosper.”
- Accounting & Cash Flow
- Business Plans/Startup Assistance
- Strategy & Planning
- In Business
- Encore (50+) Entrepreneurs
- Veteran Entrepreneurs
- Women Entrepreneurs
- Young Entrepreneurs
- Agriculture, Forestry, Fishing & Hunting
- Finance & Insurance
- Health Care & Social Assistance
- Professional, Scientific, & Technical Services
- Transportation & Warehousing