Beyond the Balanced Scorecard

The Balanced Scorecard is like the Energizer Bunny. As a management fad it keeps going and going almost a decade and a half after its introduction. It carries on because the ideas it encapsulates have inherent merit in the management of performance. Namely:

• Select some measures to focus on
• Set a target and track progress against that target
• Assign accountability for each measure
• Ensure that measures reflect the strategic intent of the organization
• Ensure a good representation of leading and lagging indicators – stop driving by looking in the rear view mirror
• Take a balanced view of performance, focusing not only on financials, but on customers, internal processes and innovation.

These are without question really good advice for an organization who is engaging to improve performance. But we can do better. Balanced Scorecard projects tend towards the long, complex and painful. Consultants come in for the six month engagement. IT gets involved and needs hundreds of thousands of dollars in new projects. Managers disagree for months on what is important, then once a scorecard is created, it is quickly forgotten. Did you know that you can be named to the Balanced Scorecard Hall of Fame without once reviewing your scorecard?

What’s more, the data that your IT department provides for your scorecard may be anywhere from 24 hours to 30 days out of date. With the Balanced Scorecard, you are indeed managing performance by looking in the rear-view mirror.

Integrating an ongoing planning, forecasting and monitoring process into your Performance Management program can make the difference between an irrelevant, ineffective and backward looking process and an engaged, active, forward looking management tool. Here is one example of how it can work:

• The highest ranking manager establishes top-down measures and targets for the organization for the next year.
• Direct reports assess their individual targets and determine what they can and can’t achieve, and what it will take to get there, including commitments for each month during the year.
• In a single meeting, the management team collaborates around these top-down and bottom-up views to come up with a single plan that everyone commits to.
• Direct reports produce a 6 month rolling forecast every month based on current orders, knowledge of the local market, production capacity, supply, pipeline, initiatives etc.
• The aggregate forecast is compared to the committed plan every month. Variances are addressed. If nothing can be done to eliminate the variance, it may be necessary to create a new plan and commit to a new set of targets. Once this is done, future forecasts are compared with the new plan.
• Personal dashboards allow manager’s to track key metrics of interest, either comparing forecast or actual values against the committed plan.

Such a process takes many of the tenants of the Balanced Scorecard approach, and translates them into a tangible, active management process. Rolling forecasts help managers identify problems and collaborate on solutions before the events actually occur. Dashboards can make monitoring a daily activity rather than a once a quarter presentation by the junior analyst.
In summary, Balanced Scorecards by themselves fail to achieve three tenants of effective performance management programs:

Collaborative: There is no built-in collaborative process to determine, agree on and commit to plan targets and forecasts.

Future-oriented: By focusing on historical actual results, the Balanced Scorecard fails to provide information about the months and quarters ahead. By integrating rolling forecasts, the process becomes much more engaging and relevant.

Real-time: Forecasting also overcomes the delays inherent in a system based on historical actual values. Plans and targets can be created based on forecast values which are far more representative than actual values that are hours or days old. Instead of arguing about which historical number is accurate, manager’s can collaborate on what they are agreeing to at the time of the discussion, based on all the information they can gather about past, present and future from their unique position “on the ground”.

Building a High Performance Management Team

Some years ago I had the opportunity to provide BI support to the management team of a 400 person organization that was struggling with performance. This is the story of how we were able to use a Performance Management program to create a remarkable change in the culture and operational dynamic of this team.

I remember well the first meeting I went to, where the business unit head expressed his dissatisfaction, and then each of the regional managers went around the room in turn, making excuses for their poor performance. Some then left the room to get on the phone and shout at their staff. What a complete and utter waste of time!

It's tempting to think that these managers, or the millions of others like them that we meet every day are simply incompetent. But in this case, the problem was systemic. These managers simply did not have the information they needed in order to engage constructively with each other. In fact what had happened prior to that fateful meeting was that each regional manager had cobbled together their own summary of performance, and the business unit head had received the only organization wide view of the data the evening before. This group did not have shared perspective on the situation, and did not have detailed analysis that would help them ask the right questions of each other.

Six months later, this team was firing on all cylinders. They were accustomed to getting a detailed information package analyzing activity in every office in every region several days before meeting. During their monthly management meetings, instead of making excuses, they could collaborate together to understand why offices with similar characteristics in different regions performed differently. In fact, they soon began moving work around between regions to optimize the total organizational performance. It was a pleasure to meet, ask key questions and collaborate on productive solutions.

Of course it is not always this easy. Some information cannot be shared broadly for security or regulatory reasons. Some management teams will continue to behave in dysfunctional ways regardless of the information they have before them. But over time, persistent presentation of the best possible information about the true state of affairs has the potential to completely change an organization for the better. Why not try it in yours?

Evidence Based Management

A recent McKinsey study of 230 companies (Managing Your Organization by the Evidence) claims to have empirically proven that three key management practices are the best way to improve organizational performance. These practices are:

• clear roles,
• an inspiring vision, and
• an open and trusting culture

McKinsey believes that these three practices play a mutually reinforcing role in supporting high performance regardless of the industry, and demonstrates a correlation between a subjective scoring on these practices and some form of financial outcome. According to their research, almost all other practices, “management fads” and initiatives implemented on their own will fail.

The study was performed by asking managers in these 230 organizations to complete a questionnaire assessing the organizations capability with respect to 34 management practices.
While they make outrageous claims about the ineffectiveness of other techniques, McKinsey covers all the bases by suggesting that “companies cannot afford to neglect any of the 34 practices… lack of success in any two or three practices makes it almost impossible for a company to do well”

Our experience at Collaborative Performance agrees that the three bullets above are indeed the most important organizational characteristics for success. However, interventions by management consultants, executive zealots or any other approach setting out to create such characteristics empty handed will indeed fail. What the McKinsey study fails to describe is how organizations came to achieve these characteristics, other than “senior executives instinctively know that any large company's people, processes, teams, and control systems require artful handling”.

Indeed, high performance relies upon a complex set of factors – there are a great many barriers to achieving clear roles, an inspiring vision and an open and trusting culture present in almost all individuals and organizations. Attempts to address these barriers by adding a charismatic leader, bringing in a management consulting team, or going away for an intense team-building event almost always fail, but for a few high-profile exceptions.

McKinsey claims that “Applied in isolation, KPIs and similar control mechanisms (such as performance contracts) are among the least satisfactory options for improving accountability.” By contrast, we believe that performance management is perhaps the only way to develop the three most effective management practices! How does this work?

1. Selecting measures to focus upon is the most tangible way to engage with the question of what your organization is about, how it creates value for customers, the aspirations of its people. Southwest Airlines is an example of an organization that used the process of measure selection repeatedly over a number of years to focus and refine its vision, operations and alignment and created exceptional value as a result.
2. Assigning ownership for measures is a very effective way to establish clear roles. Making a single person responsible for a desired outcome leaves no room for ambiguity about roles or responsibilities.
3. Regular reviews of progress against measures, KPIs and numerical goals are the perfect opportunity to reinforce the “inspiring vision”, and foster an open and trusting culture
   

This last point merits special attention. Performance Management programs are prone to misuse. A management team committed to blaming, hiding information, or command and control practices will use Performance Management techniques to reinforce and enable these ineffective behaviours. Yet inspirational application of Performance Management techniques can be highly successful in changing these attitudes and behaviours. Making data widely available effectively eliminates information hiding. The intervention of a single person with the ability and commitment to examining results in order to learn how performance may be improved can stop blaming in its tracks. Command and control cultures are difficult to maintain when collaboration around improving performance begins to take hold.

Making a commitment to managing with clear roles and an inspiring vision in an open and trusting culture is absolutely the way to achieve high performance. Performance Management is the way to translate this from a lofty and noble goal to real change and tangible results in your organization.

Welcome!

Starting a new business is as exciting and fun as it is frightening. After 18 years in the software business as a consultant, and most recently development manager for Cognos Metrics Manager, I've named myself Principal and CEO of my new company Collaborative Performance.

Collaborative Performance reflects my career-long passion to see management teams and organizations work more effectively. Over the years, I've seen lots of dysfunction and a few examples of greatness. My talent is in zeroing in on the issues that are holding you back from greatness as an organization.

One of the best ways to open up potential is to change the availability and distribution of information. When hiding data is no longer a useful strategy, managers are often able to move towards a stance of learning, openness and collaboration.

I'm going to drop several previously written articles into this blog to get started - thereafter I intend to update on a semi-regular basis with new learnings and observations I encounter in the field. I hope you'll find it valuable to follow along, and that you'll take the time to engage in the conversation.