Becoming a performance driven organisation with balanced scorecards

Introduction

A lot of effort goes into developing sound strategies for performance improvement and getting them endorsed by the board and the executives. Initially there is a flurry of new activities and initiatives. But a few months down the track, day-to-day operations seem to take over and strategy is relegated to the bottom of the pile.  The bulk of the organisation continues to do what it did before. As a result, the performance of the organisation remains unchanged.

What is typically missing is the process for turning the broad thrust of a strategy into specific measurable performance goals, and assigning accountability right through the organisation. A balanced scorecard turns a strategic plan from a passive document into marching orders for the troops on a daily basis.

Executive Summary

Strategy describes where the organisation now is and where it aspires to be. It also describes the broad initiatives that the organisation plans to take. It may describe key focus areas, process changes or capability-building initiatives or projects that are necessary for the achievement of goals. Strategy execution needs the ability to take a very broad-brush strategy and find, prioritise and carry out the key things that need to be done to put that strategy in practice. A successful execution means that the goals are set, accountability  assigned and the results reviewed.

A balanced scorecard (BSC) is a one-page document that outlines an organisation’s key performance goals and indicators (KPIs), usually covering financials, customers, execution and people.  These KPIs are driven from the company’s strategic intent. A BSC is critical for a performance-driven organisation as it creates a common view of performance across a range of objectives. For the business, KPIs are the “guiding force” that link strategic goals with day-to-day execution. This allows managers to have a better understanding of how to improve the business. Across and down the organisation, business units and teams then define supporting targets and KPIs, which results in a hierarchy of KPIs cascading down from the corporate strategy.

Why balanced scorecards?

  • We all know that ‘what gets measured gets done’. Organisations are faced with multi-dimensioned challenges (e.g. how to improve service and cut costs?). Balanced scorecards cater for many dimensions by allowing for simultaneous focus on multiple performance areas.
  • Organisations expect the strategy execution to happen in parallel with the ongoing service delivery. Merely tracking strategy execution progress can result in too much attention on strategy and not enough on service delivery. Different managers also have different accountability for delivery and strategy execution. BSC enable addressing these competing demands in a rational way.
  • BSCs also give the ability to assign joint accountability to multiple teams in the areas where joint effort is required to achieve results. Silo behaviours result where managers are held accountable for only the direct performance of their internal processes. External service or customer satisfaction outcomes result from end-to-end process execution. BSC makes this clear and enables teams to be jointly held accountable for the overall outcome.
  • In many organisations, scorecards are used only for the senior managers or executives. In fact, scorecards that cascade down many levels of the hierarchy are more effective. Here, the executives’ KPIs are directly linked to the KPIs of their managers and team leaders. There is clearer accountability for results. Cascading KPIs offer better drill down ability, allowing quick diagnosis and action on performance issues.
  • For teams lower down the hierarchy, this linkage shows, how they are contributing to the overall performance and achievement of the strategy. This can result in staff believing that  “my job matters”.

The goal of metrics is to enable managers to get a complete picture of the performance from multiple perspectives, and hence make wiser long-term decisions. As a management system, balanced scorecards enable regular feedback around both internal processes and external outcomes. Good BSCs capture feedback from the customer (or external) perspective and help analyse it with metrics from the internal processes. This encourages continuous monitoring and improvement by the teams as well as improvement in strategic performance across multiple areas.

Figure 1 – Balanced Scorecard Process

Setting the balanced scorecards is a six-step process. The first step is getting the commitment from the executive sponsor. Strategy mapping then identifies the key performance areas/indicators to focus on. The third step, selection of performance metrics, is at the heart of balanced scorecards. Having the right metrics with well-understood definitions is critical for a successful implementation. Fourthly, it is worth investing time to refine the quality of data used in the measurements and assign responsibilities for data collection to impartial staff. The fifth step, regular review, includes checking the quality and effectiveness of the metrics. The last step is to refine the performance indicators as the performance or strategy changes.

Ten Key Lessons for Balanced Scorecard Implementation

  1. Scorecards are most effective when they are linked to pay and performance management. Without this link there is little incentive for staff to take KPIs seriously. Top-level sponsorship is needed in order for this to happen.
  2. Good scorecards are brief; say one page, with around ten measures of what really matters. A business view of performance is more valuable than an internal view.  Ideally, the scores should show expected and superior performance levels. Scores weighting should be used to derive the performance ratings.
  3. Strategy Mapping will show key areas where performance must be lifted. Typically, the areas covered are financials, customers, execution and people.
    1. Financials cover profits, budgets, return on investment as well as key measures of risk.
    2. Customers cover areas that are important from a customer perspective. These could include customer satisfaction, growth/ attrition in customer numbers, number of complaints, etc.
    3. Execution (internal business process or delivery) covers how well the internal processes of the organisation are running in delivering the strategic mission for our customers. It includes key indicators of service delivery, such as service levels, reliability, on-time-performance etc.
    4. People (learning and growth) covers organisational development and ability. IT is a knowledge-worker organisation. Metrics on ‘learning’, ‘sharing’ and ‘retaining’ knowledge can be used. Metrics can cover talent management, training, turnover, and employee engagement. Some organisations also include “social responsibility”, e.g., volunteering, presentation at industry forums etc in this section.
  4. Unclear definitions undermine effectiveness. It is worth spending time in creating common definitions of the key measures. Assign data collection responsibility and review data for consistency and quality.
  5. Avoid seeking perfection with the measures or the scorecard. Measures that are 80% right can still yield valuable performance data. It is important to set up and practice the process of collecting the data, reporting, review and actions than to seek perfection. Focus on getting an acceptable level of quality.  An iterative approach works best allowing all participants to learn and refine. It is also important to remember that trends are usually more valuable than absolute values. Similarly, over reliance on tools or data collection automation at the beginning will detract from getting value from the scorecards.
  6. Meaningful performance results from understanding the desired outcomes and the internal processes that are used to generate these outcomes. Outcomes are measured from the perspective of customers while process metrics are from perspective of process owners. Usually, process metrics are used for teams while outcome measures are used for department/ service managers. Do not confuse output (what we produce) with outcome (what we produce).
  7. Drill down ability is valuable in analysing performance and improving data quality. Without adequate drill down ability, there will be greater subjectivity in interpreting results, which may result in inappropriate corrective actions being taken.
  8. Assign shared accountability to common measures such as customer satisfaction, where many teams have to work together to deliver satisfactory service to the customers. Joint responsibility will avoid silo behaviours being rewarded.
  9. Organisations that openly share the balanced scorecard results and communicate performance (and the challenges) with their teams and peers create greater commitment from their teams. It also helps to show how everyone is contributing to performance and how collective actions can improve the results.
  10. When planning to cascade scorecards through multiple levels of management in the organisation, it is best to tackle one level at a time and use an iterative approach.

For a detailed discussion and/or information on how you can use balanced scorecards to become a performance-driven organisation, please contact the author.

Tips for a successful Business Process Management implementation

Introduction

It is a well-known fact that automation without process changes results in only marginal performance improvement. It is also true with process improvements without automation. When business and IT leaders collaborate and improve end-to-end business processes, the resulting benefits are many times higher than the routine cost reduction initiatives. Hence, organisations are increasingly looking at Business Process Management as a tool to increase competitiveness, develop business agility, increase process efficiency and reduce cycle times. According to Gartner, investment in BPM suites is literally twice the growth rate of legacy packaged enterprise applications. Clearly BPM has gained traction.

There are a number of vendors, some offering a plethora of tools that are integrated into a BPM Suite, and others offering the necessary tools in a seamlessly unified environment. All of the vendors see service oriented architecture as a necessary pre-requisite for a successful BPM strategy. Most vendors advocate a more agile methodology of quick, iterative projects and support continuous improvement.

This article aims to help organisations make a successful start to their BPM journey. Here we summarise key learning from our experience. For more information on this topic please contact us by email.

Why BPM?

Today’s businesses operate in a different world than the 80s and 90s when many business systems were developed. Legacy systems are often data-centric as well as product or function centric. They are not designed to be customer facing. They are also cumbersome to change. Business today demands constant change, and with ever shortening change cycles, customers and suppliers expect to interact via multiple channels and there is an increasing demand for self-service and strait-through processing. In this world, new, smarter systems are needed to accommodate rapid changes in the business processes spanning multiple legacy systems.  These systems also need to be able to accept input from a variety of new sources (e.g. web services, data-feeds, internet, forms, call centres and other applications etc).

To achieve this agility, organisations are beginning to adapt BPM approaches and tools. Focus is shifting from applications to managing and optimising business processes. In addition to the operational efficiency, businesses are looking for process agility, which is the ability to change operations, and the way it’s people and systems work, to adapt to change.

BPM use process models to coordinate the interactions between people, systems, policies, and information. A process centric approach has clear advantages. Transactional applications have hard-wired process elements and business logic that are slow to change. Secondly business processes are rarely completed within a single application. A process layer allows processes to be clearly defined, measured and refined. It allows quick changes to process without significant code changes. It also facilitates further automation by filling gaps and linking together applications. This allows greater value to be extracted from existing investment in applications and people.

BPM tools

A BPM suite is an integrated collection of technologies that enable control and management of business processes. BPM technology has roots in process management capabilities of workflow but unlike workflow it is not document centric. Typically a BPM technology suite includes:

Process Modelling – Typically with a visual design tool

Application integration – Out of the box plug-ins or APIs to connect to other applications

Process Engine / execution – Development and run-time environments to design and execute process activities

Process monitoring and analytics – Process measurement, monitoring and data analysis capability

Business Rules management – Rules databases to define business logic that governs and automates the processes

Collaboration portals – Tools for design for customer self-service and business partner collaboration via the web

Some vendors also provide pre-packaged frameworks to help organisations in specific industries get started more quickly.

 BPM Process


Figure 1 – Business Process Management – Process improvement cycle

BPM technologies have now advanced to provide a technology supported process improvement loop from modelling and simulation through to execution, monitoring and dynamic adjustment. Typically, tools cater for different user types and roles at each stage of the process (e.g. business analysts define process models while IT developers develop and integrate).

Gartner BPM magic quadrant contains software offerings with many different approaches to process improvement. Some are domain specific applications e.g. Siebel (CRM)/Guidewire (claims) with high level of domain specific processes. Others take the architectural approach using tools from IBM/Oracle/BEA or Tibco to integrate business processes together. Others are pure-play BPM suits from Lombardi, Savvion, or Metastorm. Pegasystems’ offers BPM Suite together with one or more industry-specific solution frameworks.

Point solution applications can help quickly address critical domain specific needs but may not be extended to other areas. The architectural/integration path is popular with many as it builds on existing investment in these tools and is universal in application. Pure play solutions provide a well-integrated environment for BPM and may be easier to use. Understanding the goals of the BPM initiative and organizations maturity in using technology should facilitate the choice of tools.

Tips for making a successful start in BPM initiatives

  1. Start with an important but contained process where the improvements would matter to the business. However, avoid the temptation to take on highly complex processes. Focus BPM objective to be working smarter and improving customer experience in a consistent manner, rather than head-count reduction.
  2. Start with an understanding of your current state. Take a “measure first” approach and determine the metrics important to your business.
  3. Unlike other IT projects, BPM directly affects how business users perform their daily tasks. Get a project sponsor who is strongly engaged in the initiative and the change management aspects. Business users should play a significant role in dynamically changing a process.
  4. Use experienced process analysts who live and breath process, for the process discovery stage. This stage sets the tone for the entire project and using wrong skills/people here will prove to be an expensive mistake.
  5. BPM projects are ideally suited for iterative or agile development methods. Don’t model to get perfection. Building consensus across silos is a challenge. Start implementing and use iterations to get the business rules and process flows right. Focus on delivering value and not just the requirements. Iterations don’t mean scope creep. Try to get a process operational within a 60-90 day window.
  6. Don’t get bogged down in too much internal detail or the technology. What matters is the benefit the end customer will get as a result of the process (e.g. faster loan approval, correct order fulfilment etc) and not the technology used.
  7. Service oriented architecture is desirable. Well-defined services will speed up integration, reuse and expansion.
  8. Manage expectations. Continuous improvement approach means features that are not there on day-1 can be added progressively. Demonstrations and simulations improve understanding and help get the user experience right. Communicate successes regularly to improve stakeholder engagement.
  9. BPM methodology is different than the typical IT project methodology. Avoid mistakes like “stove pipe” BPM or an “agile waterfall” practice. Engage the vendor full time during the architecture and design stages. Gartner now predicts that half of BPM projects will fail; follow best practices to make sure you don’t.For a successful BPM implementation, designing reusable processes is key.
  10. Rather than planning a silo by silo implementation; experience suggests that identifying and designing common processes and progressively reusing these across each business area will ultimately result in a faster and lower cost implementation. When processes change, cost of change also would be lower.

Figure 2 – BPM implementation options

Have a common team (2-3 members) that will focus on building common and re-usable artefacts and frameworks. Establish governance to reward re-use and discourage rework.

  1. Plan for change. Not only the rules and process models would change but also work patterns. Processes cross silos thus functional fiefdoms and roles of people would be affected. Address the organisational change implications such as roles, responsibilities and rewards early.
  2. Establish a rigorous structured testing, measurement and governance regime to ensure that the process performs as expected and is well controlled. Identify a few important process and ROI metrics to monitor the process effectiveness. Monitor the process to detect any problems before the customers do.

For a further discussion on how you can start BPM implementation in your organisation please contact the author.