3 steps to successful measures

7/31/2019 3 Steps to Successful Measures

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Developing effective BSC measuresrequires a systematic approachsomething many organizationsfail to implement. Rather thancrafting a set of measures that

aligns with their strategy, someorganizations merely assemblelists of existing measures. Suchmeasures are often less thanideal. Usually developed ad hoc,they may simply represent theeasy things to track, or else mayonly track low-level, operationalactivities. The upshot: theyvenever been vetted for theirrelevance to strategic outcomes.

Another common problem is

many organizations almostexclusive focus on financialmeasures, which, as has beendefinitively shown, does not

yield a full picture of what drivesperformance. In short, mostorganizations existing measuresdo not provide them the informa-tion they need to make informedstrategic decisions.

Through a straightforward, three-step process, your organization

can easily overcome these pitfalls.For each strategic objective, yourBSC development team must: (1)identify the critical success factorsthat drive the objective; (2) developpotential measures for each ofthose critical success factors; and(3) select appropriate measuresfrom the list of potentials.

To begin with, be sure to enlistthe aid of subject matter experts(SMEs)people responsible forspecific functions who are closelyinvolved in day-to-day operations.

As consultants to your team, theycan offer the technical expertisenecessary to ensure your measuresprovide the information youneed to support strategic decisionmaking. To develop customermeasures, appoint sales andcustomer service managers asSMEs; for measures related toproduct delivery, recruit an SMEfrom the logistics department.Make sure your SMEs maintaintheir big-picture focus and dontget mired in the details of opera-tional processes. The point ofBSC measures, after all, is to

show leaders whats important,not to detail everything thatsgoing on.

Step 1: Identify CriticalSuccess Factors

Determining your critical successfactors (CSFs) helps you to see

where you must focus measuredevelopment. Collectively, thesemeasures describe what mustbe accomplished to successfullyachieve a strategic objective. Forexample, for an objective Reduceindustrial accidents your CSFsmight include:

Educating the workforce on theproper use of safety equipment

Providing appropriate protectiveequipment to employees

Periodically inspecting forcompliance with safety rules

Monitoring incident reports toidentify potential hazards thatcould cause a serious accident

Some potential CSFs appear tobe essential, but on closer exami-nation are not. For example,another possible CSF for theobjective noted above would beReducing lost-time accidents

(those that result in workerabsence). Certainly, this factor

would seem an important partof reducing total accidents. Yet,

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Three Steps toSuccessful MeasuresBy James Coffey, Senior Consultant, Balanced Scorecard Collaborative

Strategic measures are the key to taking the scorecardfrom the theoretical to the practical. Developing them mayseem straightforward, but can prove to be one of the biggest

challenges of implementing a Balanced Scorecard. In fact, aflawed development process is a leading cause of failed BSCimplementations. Developing successful measures requires asolid understanding of the business,of what drives outcomes,and of how different areas interact.These tried-and-trueguidelines will help get your BSC program on track.

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Figure 1. Sample CSFs and Associated Measures

Pizza company

Strategic objective:

Provide outstanding

delivery experience

Electrical equip-

ment overhauler

Strategic objective:

Reduce repair costs

Company CSFs Measures

Reduce amount ofmaterial discarded asunusable

Reduce rework required

Maintain line efficiency

Prompt delivery

Orders taken correctly

Cost of materialdiscarded as unusable

Rework costs

Production line throughput

Work in progress

Time from order to delivery

Customer complaints aboutwrong items delivered

Orders redelivered tocorrect errors


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consider how the organizationmight respond to such a measure.There could be pressure to avoidclassifying accidents as lost-timeaccidents to avoid damagingreported performance. The result?Numbers that apparently showimproved performance when,in fact, the only thing that has

changed is how accidents areclassified.

When developing CSFs, considerthe behaviors that they motivate.Use them to drive high-performancebehaviors, not those that meetsome arbitrary goal without pro-ducing the required performance.

Step 2: Develop PotentialMeasures for CriticalSuccess Factors

Now, use your CSFs to define aset of potential measures. Foreach CSF, develop one or moremeasures that track performance.The key is to select those thatprovide clear assessments of how

well your organization is accom-plishing its CSFsthus achieving

your overall strategic objective.Consider the CSFs and measuresof two example companies inFigure 1.

Beware of two common mistakes.First, do not dismiss a potentialmeasure simply because yourorganization doesnt currentlycollect data for it. Limiting yourmeasures to ones already in usecould result in missed opportuni-ties to improve the informationavailable for strategic decisionmaking. Determine your informa-tion needs firstthen decidehow to collect the data to

support them.

And dont lose sight of the bigpicture. Too many organizationsget tangled in the details ofprocesses, thinking they need tomeasure each step. Ask yourself:What if we dont know X?Can we still infer how well theprocess is working from otherpotential measures? Answering

these questions will help youpare down your list to only theessential sources of strategicallyrelevant data.

Step 3: Develop the BalancedScorecard Measures

Now youre ready to choose one

or more measures that best trackprogress toward each strategicobjective. The goal isnt to monitorevery action that could affect theoutcome, but rather to identifythose that primarily influence asuccessful outcome.

What if your team membersdisagree about the impact ofeach potential measure on overallperformance results? Try studyingpast performance data (if available)

for each potentialmeasure, and useit to quantitativelyassess how themeasures affectoverall perform-ance. While thisapproach willtake time, it hasseveral advan-tages. First, fact-based decisionmaking is certainly

preferable to relying on opinionor gut instinct. In addition, thisapproach will ensure that thecorrect opinion, rather than themost vociferous one, prevails.It also allows you to identifyadverse performance in time totake corrective action and preventa negative outcome. Remember:measures do not replace analysisas a way to determine the causesof performance; instead, they

identify where to focus attentionfor such analysisand where toseek corrective action.

In some cases, opinions may varyabout what information will bestsupport your strategic objectives.If there are no clear reasons tochoose one measure over another,try tracking both. Once enoughdata has been collected, assess

how well each one supportsdecision making. Then, eliminateoneor keep them both, if theyeach provide important information.

With this goal in mind, theequipment overhauler noted inFigure 1 could thus select thefollowing measures out of its

list of potentials: Rework costs: This measure

would encompass the measureunusable material discarded,since increased rework wouldgenerally indicate the replace-ment of parts already repaired,resulting in those parts beingdiscarded as unusable.

Production line throughput:Optimized throughput results inthe consistent flow of material

through the production line,which indicates that half-completed pieces of equipmentare not held up awaiting thenext step in the productionprocess. Since work in progressmeasures the total amount ofequipment being built, the pro-duction line throughput measureautomatically ensures that thereisnt an excessive amount of

work in progress.

Our pizza delivery companyshould opt for one measure:customer complaints about

wrong items delivered.Thismeasure indicates whethercustomers are getting what theyordered, and also provides directfeedback concerning problemsin the delivery or order-takingprocesses.

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Limiting your measures to ones already in

use could result in missed opportunities to

improve the information available for strategic

decision making. Determine your information

needs firstthen decide how to collect the

data to support them.


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While the potential measuretime from order to deliverymight be a good measure, itcould also motivate the wrongbehavior. Drivers might speed tomeet delivery time targets, there-by endangering themselves andothers. Selecting the right measurerequires analyzing customer

desires and setting targets thatmeet those desires withoutencouraging unsafe behavior.

Through careful review, BSCteams can minimize the numberof measures, thereby focusingon the critical few while ensuringall performance drivers are takeninto consideration. Be sure to:

Collect historical data abouta measure (if available) to

determine how it would helpyou to assess performanceand drive decision making.Eliminate measures thatdo not provide insight intooverall performance.

Assess each measure for itsexclusivity. Does it provideunique information that reveals

what is driving performance,or can you get the same infor-mation from other measures?Eliminate redundant measuresfrom the list.

Decide whether the measureis appropriate for reporting toexecutives. The goal of theBSC development team is toidentify only those measuresthat need to be brought toleaders attention. Other meas-ures are best left to lowerlevels of the organization.

By using these guidelines, youcan whittle your potential meas-ures down to a manageable

few that provide strategicasopposed to operationalinforma-tion about performance. The rightdata will help your organizationmake informed, strategy-focuseddecisions. I

Next: Using Indexes as Measures

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C O M I N G U P I N B S R

A new series on the roles of the

office of strategic management.

First up: David Norton on building

alignment

Case File: Canon U.S.A.s

transformation from distributor

to solutions creator

Building paradise is hard

work: Marriott Vacation Club

Internationals Roy Barnes discusses

the strategic management function

at his highly integrated organization

Robert Kaplan on the customer

metrics that really count

Creating competency profiles:

Handleman Companys strategic

approach to HR alignment

When are indexes the best type

of measure? And how do you

create them?

I N T H E N E W S

India Perspectives: After success-

fully implementing the Balanced

Scorecard at the corporate level,

Indias Bajaj Electricals Limited,

part of the Bajaj Group conglomer-

ate, is cascading the scorecard to

functional management levels.

An article in The Hindu Business

Line, a leading Chennai-based daily,

urges Indias manufacturers to

adopt the Balanced Scorecard to

boost competitivenessa national

concern, given the manufacturing

sectors sluggish growth in recent

years.Most manufacturers, the article

notes, struggle when faced with

strategic challenges, and the BSCcan help galvanize the organization

into action.South Africas

scorecard usage: A study by

Business Day, a leading South

African daily, reaffirms the growing

popularity of the BSC in that

country,noting that the tool offers

one of the most effective ways

of communicating the objectives,

managing the response, and

measuring the results of incentive

programmes in large and small

organizations. The South African

governments Trade and Industry

Ministry adopted the BSC as part

of its economic transformation

strategy for black economic

empowerment, a 2003 legislative

mandate (BSR JulyAugust 2003).

You are now free to move

about the country with the BSC:

Southwest Airlines is using the

Balanced Scorecard as its primary

vehicle for executing strategy.

The U.S. Naval Undersea WarfareCenter, the Navys R&D and testing

site for submarines and undersea

weapons systems, has cascaded the

BSC throughout the organization,

where its helped clarify strategy,

align divisions and individuals,

and manage change.Energizing

the workforce:Within one year of

implementing the Balanced

Scorecard, employees at Kansas

City Power & Light, which serves

nearly half a million customers

in Kansas and Missouri, getthe

connection between their daily

responsibilities and corporate

strategy, thanks to easy-to-read

scorecards, strategy summaries,

and regular progress reports.

Carla ODell,president of the

American Productivity and

Quality Center, praises the benefits

ofSarbanes-Oxley (SOX)for

organizations already steeped in

process mapping and improvement

programs (such as the BSC andknowledge management systems).

In a bettermanagement.com article,

ODell observes that SOX isnt just

another cost to the system,it s a

catalyzing event that leads to

better business results.

Reported by Keith Katz

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