!DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Strict//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-strict.dtd"> Streamline Training & Documentation: Using a Scorecard Effectively

Monday, January 22, 2007

Using a Scorecard Effectively

Judging from the results of a survey conducted by the Institute of Management Accountants, companies are having trouble using scorecard systems effectively. Only 51% of the 382 usable survey responses (from 44 countries) reported that the companies in question were realizing benefits from their scorecard system.

Management magazine provides a summary of the survey findings, by Raef Lawson, director of research for the Institute; William Stratton, professor of accounting at Udvar-Hazy School of Business, Dixie State College; and Toby Hatch, a business process management specialist at Hyperion Solutions.

Since the purpose of a scorecard is to provide a meaningful indication of a company's progress toward meeting its objectives, it stands to reason that the scorecard should be clearly linked to the company's strategy. For example, the scorecard should be based on an explicit mapping of the cause-and-effect relationships among the elements of the strategy (as in the strategy map shown below). A scorecard system should not be simply a tactical tool for monitoring key performance indicators (KPIs).

(click on the image to see a larger version)

In analyzing the differences between companies that realized benefits from their scorecard systems, and those that did not, Lawson, Stratton, and Hatch arrived at several telling conclusions. Notably, best-practice companies1 are much more likely than no-benefit companies2 to:
  • integrate scorecard measures into their planning and budgeting process.


  • use the scorecard system to provide feedback to responsible managers so they can make adjustments to the strategic plan as needed.


  • link strategy to the scorecard system in at least one of the following ways:

    • The responsibility for implementing actions that are part of executing the strategy, is assigned to specific people (teams, departments, etc.). Progress on execution is measured, and the measures used are on the scorecards of the responsible parties.


    • Each scorecard rolls up to the next level.
The benefits of the scorecard system that best-practice companies cited most frequently were:
  • increased communication.


  • ability to measure performance.


  • understanding cause-and-effect relationships among measures and among the various components of the company's strategy.
In sum, best-practice scorecard organizations tend to exhibit the characteristics of strategy-focused organizations. Conversely, most organizations that have not realized significant benefits are using a scorecard system that has weak strategic focus.

Lawson, Stratton, and Hatch conclude, "organizations that are considering deploying scorecard systems should give close attention to the level of strategic focus when designing and implementing their system to optimize the value received."

__________
1 The best-practices companies have the following characteristics: (1) They have had a scorecard system in place for more than one year. (2) They drive a company vision with the scorecard. (3) Their scorecard system facilitates sustainable alignment around company strategy. (4) They realize significant benefits from their scorecard system.

2 "No-benefit companies" are those that answered "somewhat disagree," "disagree," or "srongly disagree" to the statement, "Our organization has realized significant benefits of our scorecarding system."

###

Labels: , ,