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Maximizing Value from the Balanced Scorecard
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Maximizing Value from the Balanced Scorecard
Author:
Steve Anderson
6/18/2009
High-level business intelligence initiatives such as the balanced scorecard and lean management are alluring. Companies can quickly assemble a team of executives, revalidate corporate strategies / missions, define a “new” set of targets or metrics, begin tracking progress, and communicate success across the organization. This is not just exciting; it is “sexy.” A high profile role, working with cutting-edge solutions, surrounded by the executive elite, with a ton of press and exposure - who wouldn’t want to be on this glory team?
This endeavor reminds us of a recent fishing trip we had ‘hunting’ for tarpon in the Gulf of Mexico. Like the balanced scorecard (BSC), tarpon fishing is a pedigree endeavor reserved for the most senior practitioners. It requires significant teamwork among the members of your boat, and also with the dozens of million-dollar boats surrounding you. Similar to the BSC, information needs to flow freely and in a timely manner between different boats since the tarpon move quickly and in irrational patterns. Like an elk hunt, teams can work together to drive the tarpon. This is similar to interrelated departments working together to drive company. As with the BSC, tarpon pursuits are most visibly executed on the surface – boats race along the surface in the quest to spot schools of tarpon breaking the surface.
But there are other, more subtle commonalities that companies need to recognize. Like business intelligence, real success at tarpon fishing requires tools that hunt the fish at lower depths. Fish are not caught on the surface, but at depths of 10 to 20 feet. That means using lures with weights, high-strength reels, depth meters, and sonar. The same is true of the balanced scorecard. Practitioners need tools like time-driven activity-based costing (TDABC) to not only identify, but also track opportunities. Having transactional details is critical for effective identification and measurement of opportunities, and is not necessarily achieved with high-level business intelligence. Transactional details help the practitioner to identify root cause and to be able to understand what the fix is. Many times you need to understand what is causing the problem. An example: two customers are both unprofitable. Do we fire them both? Do we try to fix a broken process with them? Is every transaction we do with them unprofitable or is it caused by one type of transaction? For these two, the answers may be different…how do we know without the details? The only way to know and take action with confidence is to get into the details. A second reason for having transaction information is for organizational buy-in. It is easier to get operational support when they can visualize the impact of actual transactions.
As colleagues Dr. Kaplan and Dr. Norton discuss in their new book The Execution Premium, good strategy tools (epitomized by BSC) require good operational tools (epitomized by TDABC).
Another parallel between tarpon fishing and business intelligence: spotting, or even hooking a tarpon is vastly different than landing one. And identifying value is not the same as capturing it. For the past 10 years, we have heard dozens of companies praise their efforts with business intelligence. They uniformly identify opportunities. For example, at a recent conference in Korea, we heard all four presenters share their satisfaction with BSC. The process did align corporate strategy with key performance measures and operational goals. But what surprised us was that companies were having difficulty quantifying the bottom line impact the company had actually achieved. In other words, ‘landing the tarpon.’ To accomplish this, you need a whole lot more than “alignment”; you need great information, tools, and experience. This is why we were excited to see that Dr. Kaplan and Dr. Norton are recommending that a company lay the foundation of great information and tools by implement time driven activity-based costing before embarking on strategic initiatives. Don’t do like we did when you fish for tarpon – make sure you do your research, have the proper equipment, and get an expert guide on your boat.
Tags:
balanced scorecard, lean management
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