The Balanced Scorecard is a management system that clarifies the strategy and vision of an organization, and then translates them into action that can be tracked. In simple terms, it’s a way of understanding how well the department or entire organization is doing.
At first glance the balanced scorecard (BSC) can seem to be only a way of turning strategy into something tangible, so that it can be measured. But the key to a BSC lies in its prioritization of the measurements that are most meaningful to the organization. It is this prioritization that makes the BSC approach a true management system, going beyond a mere measurement system.
As organizations adopted the Balanced Scorecard in the 1990s, however, one issue emerged nearly universally: how to measure the IT department’s contribution to the Balanced Scorecard, and ultimately to the bottom line.
History of the traditional Balanced Scorecard
In the early 1990s, two professors at Harvard Business School found that the vast majority of companies managed their business based solely on financial measurements. Robert Kaplan and David Norton recognized an early shift: while finance is imperative to business health, it only reports what has already happened. Finances can’t define where a business will head.
Together, Kaplan and Norton wanted to develop a way to manage strategy performance – and strategy isn’t something that easily translates to numbers and metrics.
They built the Balanced Scorecard as the solution to this problem. The main objective of the BSC is to translate corporate strategy and mission into tangible objects that can be measured, and prioritizing which measurements are most meaningful.
The Balanced Scorecard defined four areas that would help managers be able to plan, implement, and achieve the business strategy:
- Finance: tracking financial requirements and performance
- Internal Business Process: measuring critical-to-customer process requirements
- Customer: measuring the satisfaction and performance requirements of customers, as it applies to both the organization and what it delivers (products or services)
- Knowledge, Education, and Growth: measuring how the organization educates employees, gains and captures knowledges, and uses this information to grow and stay competitive
This new management system aimed to clarify the strategy and vision, and then translate them into action. The vital part of maintaining a BSC is that all four arenas must be evaluated consistently. To delay examination or ignore a metric altogether will lead to an unbalanced business situation with inevitable and significant negative impact.
Whether they saw this coming change or not, Kaplan and Norton’s Balanced Scorecard highlights a change in business management that is nearly the standard today, 25 years later: not only did they see that finance couldn’t tell the future, but now, businesses are talking about service delivery and customer satisfaction almost more often than the financial bottom line.
IT and the BSC
Anyone in the industry knows that the way IT works is changing – drastically. A necessary part of any company in the 21st century, IT is no longer only the bearer of hardware and software support. In fact, as companies automate these processes, enterprises are starting to understand that IT is just as relevant to service delivery as any other business function within an organization. IT is also starting to support intelligent software development and implementation.
With the original scorecard system in place, IT was one sector that was difficult to measure with the pre-existing measurements, likely because it has traditionally been seen “only” as a utility.
As this shift happens in real time worldwide, IT is becoming less of a utility – and more of a business partner. As a business partner, like finance, sales, marketing, HR, customer service, and product development, IT must be managed.
The tricky part is this: IT often resides in its own business silo, away from “vital” business partners, the industry typically relies on its own unique, IT-centric metrics to track performance. A strong performance in the IT department may not quite translate to a positive performance to other parts of the enterprise.
IT has often also been reactive in their work, responding to outages or help desk issues once they arise; as such, IT teams aren’t traditionally poised to think or act strategically.
Not long after Kaplan and Norton developed their Balanced Scorecard, Belgian organizational theorist Wim Van Grembergen and IT specialist Rik Van Bruggen adopted the traditional BSC. They saw the difficulties in applying the four legs of the traditional BSC to an IT environment. In 1997, they modified the four areas to better fit an IT environment:
- Corporate contribution
- Customer (User) Orientation
- Operational Excellence
- Future Orientation
The goal of this revised IT Balanced Scorecard is to align the IT department with the rest of the organization, so that its metrics can be tracked alongside enterprise-wide metrics. It’s easy to see why: Imagine that IT is helping other business units improve their efficiency and customer satisfaction – then it’s a value-add for the enterprise. But, historically, no measurements have tracked these contributions.
Building an IT BSC
Organizations must decide how to employ the Balanced Scorecard in the most beneficial way for their bottom line. Some enterprises take a top-down approach that puts all departments, including IT, on the same scorecard. Others opt to customize their scorecards, providing a specific IT Balanced Scorecard.
Applying existing BSC metrics to IT
In this approach, the IT BSC is really about aligning language, so those within IT and those outside it are talking about measuring the same sorts of things in the same sorts of ways.
One way is to think about existing measurements in other areas: for instance, in HR the time-to-hire and employee turnover metrics, or in accounts and finance, there may be an order-to-cash measurement. What can IT do to contribute to these measurements?
Once IT has been looped into the language, a shift occurs wherein they understand how the same terminology applies differently to each department.
Create a custom IT BSC
For other organizations, the best approach to an IT BSC is to take the traditional four quadrants of the traditional BSC and then customize them to fit IT. This could mean using the four areas that Van Grembergen and Van Bruggen developed, or choosing others entirely.
A common approach that IT performance experts suggest is using the IT BSC quadrants, but opting which key performance indicators the IT team applies, which likely are different than the KPIs from other business partners.
Here are examples:
- The “customer” quadrant can be measured by “IT equipment users”, wherein the customers become whoever partners with IT. These quadrants could have KPIs that track development of these partnerships as well as the satisfaction of these users.
- The “operational excellence” quadrant could have KPIs that measure help desk efficiency, time-to-respond, efficient software development, etc., as align with the organization’s overall strategy.
Getting IT and enterprise buy-in
Companies that have adopted the IT BSC approach see success when rolling it out in tandem with a companywide overhaul of strategic planning. Employee buy-in is crucial, as the metrics must be embraced by both leadership and employees as new ways of tracking what is working. The BSC, including the IT BSC, encourage enterprises to get rid of thinking along the lines of “this is how it’s always been done”. Instead, the BSC measures exactly what is or isn’t aligning with the strategy – so changes to how things work are inevitable.
BSC is a way to track value
At the end of the day, enterprises can use whichever parts of the BSC work for their IT or other departments. It is no one-size-fits-all solution that simply can be applied and start working.
IT experts in particular encourage IT departments to use the BSC as a way to continue to build IT value to the organization. Companies that have adopted the management system report that the IT scorecard helps companies explore new ways of looking at IT – which means that IT can be empowered to take on new projects or innovative ideas. The scorecard can help encourage long-term goals, like software and help desk automation, to free up time for IT to reinvest their labor into more value-add ventures.
In this way, implementing an IT BSC becomes more about culture than numbers. It requires an agreed notion of what areas are prioritized and what leadership should look like. And the more employees and leaders outside of IT that embrace the cultural change, the easier the IT BSC will be to implement.
These postings are my own and do not necessarily represent BMC's position, strategies, or opinion.