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August 18, 2008

The Art of Scorecarding

I just completed reading a book on Microsoft's Performance Point Server and was surprised, not by the features and functionality of Performance Point, but how the author treated the subject of scorecards and balanced scorecards. It seems everyone has their own definition of scorecards, and they cover the spectrum from visual representation of data to complex GUI interfaces that show cool dials and graphs.

Sadly, most definitions miss the point. The term “Scorecards” originated with the
Kaplan and Norton's definition of the balanced scorecard and was meant to create a strategic method of management. Scorecard software, for its part, is intended to encapsulate a company's strategic plan and allow operations to be measured against it.

In this way, the scorecard considers information not from the bottom up, with an “in all this data there must be a pony some where” perspective, but from the top down. In other words, What is strategic to our business and can we measure it from the highest levels through the lowest levels of detail to support decisions and action plans? The author of the Performance Point Server book treated scoring and weighting as an optional activity. Of course, scoring and weighting is the only way to effectively measure what seem to be obtuse strategic objectives.

It always amazes me that the balanced scorecard methodology-or any scorecarding methodology, for that matter-hasn't taken hold in more companies. The balanced scorecard methodology has been around about 15 years, and companies implementing balanced scorecards have produced dramatic turnarounds.

The common refrains that “finance handles that (the finances of the business )” or “that is done in accounting,” would seem to suggest that financial management is a black art or something of magic. Scorecards help put these myths to bed by pulling back the wizard's curtain to reveal critical business data that is specific to authorized executives, managers and departments, in a format which is graphical and makes clear the relationship between content. In effect,
scorecards makes visible the results of all the “accounting” being performed in the organization and even step beyond what is typically thought of as accounting to include operational metrics.

Maybe companies that have successfully implemented scorecards as a strategic method of management understand the benefits and want to keep it a secret, but if I was hired as a new CFO of a company, the first area I would address to “make my mark” would be scorecards. I would not wait for the “perfect set of Key Performance Indicators,” but would start with the “perceived” key metrics or what I'm currently highlighting in management review meetings, and work as a facilitator to evolve the scorecarding process to a strategic method of management.

Posted by Host Analytics Team at August 18, 2008 10:10 PM