Originally published January 29, 2008
Over the past decade, more and more companies have adopted the balanced scorecard (BSC) as a key framework for managing their businesses. In addition to being a strong tool for communication of key strategies, the BSC provides clear linkages between strategies, the business processes by which the strategies are executed, and the key performance indicators (KPIs) that measure business performance. From a performance management perspective, the BSC provides the baseline for performance measurement; and, according to industry research, many companies who adopt the BSC are satisfied with the method and plan to continue its use. And whether you call it enterprise performance management, business performance management, or corporate performance management, there is no denying that the ability to measure performance from financial, customer, operational, and learning perspectives is valuable.
Another view of the BSC and performance measurement is as a recurring management process. After the initial strategy maps have been created and cascaded, the objectives have been decided, the targets have been defined, and initiatives have been launched, there is a regular performance measurement and reporting cycle, which is often monthly. As you might imagine, for a company of any size and complexity, the number of KPIs to be reported every month can be in the dozens if not hundreds. Further, the scope of business information required to report the KPIs can be quite broad and may require data integration from several sources. Many companies use largely manual methods for BSC reporting, expending large sums of money to produce monthly BSC reports – in some cases spending more than $1 million per year. While the costs may not be incremental cash flows, they are certainly opportunity costs, and they have an adverse impact on productivity. Given the current state of business intelligence (BI) practice and tools, there is no reason why the recurring BSC reporting process cannot be automated and based on integrated data.
More broadly, performance measurement is only one part of the performance management cycle. To illustrate, let’s say that an enterprise level KPI is order-to-cash cycle time. Let’s further assume that this KPI has been cascaded down to the component business processes (e.g., order-to-schedule cycle time, manufacturing cycle time, finished goods-to-shipping cycle time, and so forth). At the end of a reporting period, the designated executive and managers receive the KPIs appropriate for their positions. For example:
From this performance measurement data, we see a couple of areas where targets were not met. That being said, this KPI – and the BSC in general – does not provide the business information, analytical tools, and structured decision support that is needed to actually improve the KPIs. For that, we need business intelligence.
Looked at holistically, the BSC establishes a performance measurement baseline, and business intelligence can automate the performance measurement process and deliver business information, analytical tools, and structured decision support to improve the core processes that drive the KPIs. Accordingly, BSC and business intelligence should be aligned to work together as complementary tools in the performance management toolkit. For more on this topic, see Performance Management, Balanced Scorecards and Business Intelligence: Alignment for Business Results.
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