Scorecard and KPIs: if it cannot be measured, it cannot be managed!
From George Odiorne to Peter Drucker, the quote, “If you can’t measure something, you can’t manage it,” has been discussed, spoken, and written in many forms over the years. Regardless of how the quote is written, you need scorecards if you are to measure, manage, and improve your business, operations, and processes. This article will suggest that you should consider developing and deploying Cascading and Balanced Scorecards as a potential option. Chuck Coonradt is well-known for using scorecards in his methodology, “The Game of Work;” Robert Kaplan and David Norton are authors of “The Balanced Scorecard” and are credited with the balanced scorecard concept.
Balanced Scorecards start with the top-level position in the organization (Level One) and flow through all other levels, with focus on measuring and managing the critical few business results. It is important to consider that what you measure drives specific behaviors. Selecting a Key Performance Indicator (KPI) that drives the wrong behavior may be much worse than having no scorecard at all. Balancing the scorecards across Financial, Customer, Internal Processes, and Learning and Growth categories ensures focus is given across the critical areas of the business and supports strategic initiatives. Another consideration is that each scorecard must be in alignment with vertical-level scorecards (scorecards in the organizationally hierarchical cascade) and the horizontal-level scorecards (scorecards of internal customers and suppliers to each position).
Each scorecard should include specific and common information:
- Title: Descriptive of the scorecard metric and intent
- Owner: Clearly identified, responsible for timely updates, and accountable for performance results
- Y Axis and Title: Indicates performance metric and measurement scale
- Performance Line: Indicates actual and real-time performance of scorecard’s KPI
- Goal Line: Achievable and adjusted, as goals are met and new standards are set
- Rolling Average Line: Indicates short-term performance
- Directional Arrow: Indicates the direction – up or down – expected for improvement
- X Axis: Indicates the time period between data points
- Legend: Identifies each line in the scorecard
An additional consideration for implementing a Balanced Scorecards methodology includes determining the actual number of scorecards necessary for each level and position. Often this is dependent on the level of the position and the position’s direct impact on business-level results. Note: The Level One leader may have several scorecards, while a Level Six individual contributor may have only a few scorecards. Scorecards are most effective when reviewed in weekly one-on-one sessions and coaching sessions. Balanced Scorecards typically measure outputs or results. When the results are not as planned, the rigor and methodologies of A3 Thinking, PDCA, or Six Sigma DMAIC are effective to understand and improve inputs that drive business results tracked on scorecards.