Balanced Scorecards
Strategic Dashboard
Key Performance Indicators
Strategy Mapping
Systems Thinking
Strategy Thinking
Performance Management
Performance Management Techniques

Pharos informatics can help you identify which measures work best for your organisation

Balanced scorecards
Should be about communicating strategy. And in their most sophisticated guises as strategy maps and cause-and-effect chains, they are great tools for this.

Don’t use them for keeping the score. Get it roughly right, aligned to the strategic direction and start communicating.

Strategic Dashboard
We prefer the term ‘strategic dashboard’ to scorecard.

• What is a straetgic dashboard?
  The best analogy is with a pilot’s instrument panel. This has a range of indicators: compass, altimeter, horizon, speed, GPS, etc.  The pilot knows the strategic direction and uses the instruments to navigate towards their destination – not seeking balance between all the indicators (we’re a bit low on the engine fire indicator!), or to maximise one or all of them or counting the score, but instead understanding the trade-offs between them and seeking the best route.
  
  A fighter jet like the F16 is deliberately designed to be unbalanced, because that makes it fast to react to the pilot’s commands: built-in agility, flexibility and responsiveness – just what is required in CPM systems.
   
• Board committment
  Building a good strategic dashboard involves hard work and cannot be done without board commitment to the process.  The board has to be deeply involved in the design of the cause-and-effect chain. This is about communication of strategy, and the board cannot delegate that duty.
   
• Middle Management
  The middle management group does have a role to play though. Once the board have agreed the strategic objectives and how they fit together to make a picture of the business’ strategy in the cause-and-effect chain, there is still work to be done – and this can be delegated!

Key Performance Indicators
Each Key Performance Indicator in the strategic dashboard needs underpinning detail:

• What is its precise definition?
• How does it link to strategy?
• How precisely is it calculated?
• Who owns it?
• Who will complete the monthly commentary?
• What is the expected behaviour from choosing to measure this Key Performance Indicator?
• What will the graph look like?
• What colours are you going to use for actual, budget, last year?
• Where does the data come from – is it ‘hard’ transactional data from the ERP system or ‘soft’ non-ERP data?

Doing this work badly or, as frequently happens, not doing it until part way through the automation phase guarantees a painful systems project.

Key Performance Indicators are unique to each company. Even companies in the same industry do not necessarily share Key Performance Indicators as each company has different strategies, different strengths and weaknesses.

Before identifying Key Performance Indicators you should:

• Know where you are taking your company – goals and targets.
• Know what will help you get there – what are the drivers of company performance?
• Understand what could hinder the company from getting there – important indicators to monitor.
• Decide what information has to be monitored to know whether the company is on track.
• Decide who needs to receive this information – who has the power to decide what (corrective) action to take and when to take it.
• Decide how frequently the information is needed. The more turbulent the environment, the more frequently a company needs to monitor its performance indicators.
• Decide on the format users would like to receive the information in. For example, if there is an unexpected variance in performance indicator measure, you can set the system up so that it sends an email to the person who can take appropriate action.
• Assign responsibility for entering the information into the system.

Strategy mapping
A strategy map aims to show how an organisation’s strategic objectives are delivered. This is through having a well-defined product or service offering focused on customer needs, which in turn is supported by the necessary business processes, underpinned by the organisation’s own particular approach to developing its people resource, technology and culture.

The strategy map is developed as a number of linked boxes or ‘elements’ that describe in each perspective how the objective or supporting objective is delivered.

The main purpose of the strategy map is to produce a framework for identifying performance measures and prioritising them. Each strategy map box or ‘element’ is an objective, against which an appropriate performance measure can be identified.

Identifying performance measures for each strategy map box or element will usually provide more performance measures than required for a balanced scorecard at the organisational level, and the strategy map can be used to identify the highest priority results or outcomes and their associated elements and performance measures.

Systems thinking
A systems thinking view of the business is taken to build a cause and effect model. As the name suggests, the model aims to describe the business as a dynamic system of linked influence drivers or business factors.

Strategy thinking

• Managers find it easy to understand and work with
• A draft output can be produced early and subsequently refined
• Easier to control and manage the process, with less reliance on consultants
• Focuses on strategy from the outset
• Results can be achieved rapidly with a tight resource budget
• A complex business model, where there is a lot of management knowledge and expertise
• Managers wish to create a new shared view of the business
• Can create a strong overt link to shareholder value drivers
• Can be used subsequently to diagnose the causes of business under (or over) performance
• Requires significant investment resources

At this stage there is no overt relationship with business strategy. Key outputs from the model are driver trees that show the hierarchy of influence drivers

The driver trees are used to identify high-priority influence drivers and from this to design performance measures that can be grouped and presented as a balanced scorecard.

This requires expertise in systems thinking techniques and the cause and effect model would be developed in a special purpose software package (for example Vensim, Powersim or I-Think). The balanced scorecard is developed towards the end of the process.

• Know yourself
  The pattern of adopting a new business approach or technique follows that of any new product or service. There will be early adopters who are prepared to take risks to obtain competitive advantage, those who wish to wait to judge the success of the technique before making a more considered investment, and those with a highly risk-averse profile who will be late adopters.

By placing themselves on the model of maturity, organisations can choose how far and how fast they adopt this particular business technique.

Finally we can use performance management techniques to implement the above.

Performance Management
Performance Management may disappoint companies who see it as a solution to their problems. It will benefit companies who see it as an opportunity to review and greatly improve their decision support system.

The word ‘integration’ should put most people on their guard. No matter how noble the intention, integration of any type – and particularly of IT systems – is difficult and often painful.

One of the dangers of ‘integrating’ information from different systems, is that the same information can be found in more than one system. The result is duplication and confusion as it will not always be clear which input is the most up-to-date. It is important therefore to assign clear responsibilities for entering information to avoid duplication.

Beware the influence of CPM vendors. They should be contacted only after the organisation has clarified its objectives and once it has decided what it wants from the system.

• Preparation
  There are two aspects of corporate performance that need to be managed: external and internal.

External aspects are all the relationships that the company has with the entities in its environment. These entities are there because they are necessary to the company’s operations.

The internal aspects are the company’s processes.

Performance Management Techniques
Performance Management is a vehicle which enables the Management Team to develop an accurate view of their current performance and agree objectives which meet the identified needs of the business.

• The needs are a shared commitment of the Management Team and they subscribe to the ethos/objectives of the organisation.
   
• The effective conduct of performance management is essential to the continuous improvement of the organisation.
   
• Implementing performance management well, improves the business and raises the standards of employee achievement.
   
• The Board has the overarching responsibility and ultimate authority for the direction and the performance of the business.
   
• Implementing performance management assists the Board in discharging its statutory duty to conduct the business with a view to promoting improved standards.
   
• Ensuring all staff are well motivated and professionally developed is both a key responsibility of the Board and is the means for delivering continuous improvement and raising standards of achievement throughtout the organisation.
   
• Implementing performance management well creates a rewarding and challenging workplace environment