I recently finished reading Balanced Scorecard Step-by-Step by Paul R. Niven and if you manage any part of a business, then I highly suggest reading this book. It’s pretty dry reading, but the concepts and how he guides you through it are very good. Of course, the most difficult part of putting together a balanced scorecard for your organization is coming up with the right strategies and measures. The book doesn’t really help with those two things. The idea if a balanced scorecard is aligning your strategies and their activities that you do to the overall vision for your company, organization, team, or even just an individual. Then identifying the leading and lagging measures for each strategy to know if it’s really working or not. Here is a very simple view of how I see it all fitting together, which is outlined nicely in the book:
Mission : Why we exist – defines our core purpose as an organization
Values: Our guiding principles – the values that we consider essential to achieving our mission
Vision: Description of our future that will lead to wins – explains our scope of business activities, how we will be viewed, where we will lead, and our distinct competencies
Strategy: Linking our distinct set of related activities to create unique value propositions
Strategy Map: Aligning your strategies with your activities and identifying their cause and effect relations.
Objectives: The individually measured activities that make up our strategy
Balanced Scorecard: The mechanism to track the achievement of the vision (Using measurement to capture the correct balance of skills, processes, and customer requirements that lead to our desired future as reflected in the vision)
The trick is to identify the cause and effect between the different activities. Do this with Leading and Lagging indicators, which means:
- Lead indicators usually measure processes and activities.
- Lead indicators are the measures that lead to (or drive) the results achieved in the lagging indicators.
- Leading indicators should predict performance of lagging measures
- Leading indicators are what set you apart by identifying the specific activities and processes you believe are critical to driving those lagging indicators of success.
- Lag indicators represent the consequences of actions previously taken.
Or my overly simplistic way to put this another way:
- Measure the objectives (activities) with lead indicators
- Measure the results with lag indicators
What it comes down to is that every activity you do should have a valid business case that proves it is useful to achieve the associated strategy. If the activity can’t prove that, then it probably isn’t worth doing. That seems like common sense, but I'm sure many of us have worked on projects that never seemed to have any impact on the business.
Now just to throw a wrench in this great thinking of aligning objectives to strategy with leading and lagging measures, my wife pointed out the fact that “group think” at NASA was essentially the problem behind the two Space Shuttle disasters. Her point being that if a bunch of “business people” are focused on measuring everything and not listening to the engineers, then it could lead to serious problems. I hope to avoid that so that none of our Microsoft Technology Centers explode. It is certainly something to consider and keep in mind when I feel overwhelmed with metrics.
I am now trying come up with a good strategy map and balanced scorecard for our team, which is interesting since the book explains how to set up a rather large team to create a balanced scorecard – not just one person. But, it should be a fun project for me nonetheless.