Use Balanced Scorecards for strategic alignment, not as dashboards

Just before the middle of the year there’s a flurry of goal-setting in analyst relations teams. Colleagues are setting budgets, looking at progress and realigning resources. That means we’re having a few discussions about Balanced Scorecards, and seeing some common challenges in using them.

The balanced scorecard identifies four perspectives to track the progress of strategy:

  • Learning and Growth
  • Business Process
  • Customer
  • Financial.

If you’re not familiar with the Scorecard, then we can recommend this free paper from Bloor Research, which summarises the essential position developed in the 1990s from work done by David Norton and Robert S. Kaplan. Together, they founded the Balanced Scorecard Collaborative, which certifies providers of Scorecard solutions. Many software vendors have been certified to offer Balanced Scorecards, including applications from Business Objects, Cognos, Microsoft Office, Oracle and SAS.

While the Scorecard is designed for corporate use, many AR departments use Scorecards. They either feed their metric up into high level Scorecards, or they use the approach to measure their own progress in terms of financial impact, working through processes effectively, developing rapport with their internal and external clients, and the rate at which they are learning and developing their capacities.

In discussions with clients, we are stressing five key risks of misapplying the Scorecard.

  1. Scorecard should focus on strategy, not just tactics. The great value of the scorecard is that it focuses you on both short-term and long-term tasks that are aligned to corporate strategy. Most AR effort is wasted because many AR managers focus on maximising the volume of activities (meetings, report mentions, mailings, etc.) without looking at the quality of the activity or whether it is focused on the right analysts. However, the scorecard will only make AR more strategic if the strategic goals of AR are included. That means focusing on the long-term changes you want to see, and not only looking at your own daily activity.
  2. Balanced scorecards use all four segments. The scorecard needs to be balanced to work. That means it needs to take all four views: the financial impact (the marginal difference in profit and cost made by the AR function); How AR is shifting the opinions of ‘customers’ (analysts and internal clients); How effective the AR process is (see our IDEAL audit) and also the developing the AR team’s capacity to learn and change.
  3. You might only do what you measure. Measurement’s tricky: measures often look at individual tasks and not the whole goal. Sometimes measures reward people who maximise one particular metric, even if that focus actually hampers the ability of the organisations to meets its broader goals. A great example is counting the number of times your firm is mentioned: some firms increase this number by orienting away from the analysts with the most influence, and towards the analysts who are most easily swayed by vendors. That might lead to more mentions, but they are worth much less.
  4. Target a standard score, rather than unending expansion. Many people wonder about what number they should bring forward: the raw metric? a scaled metric, like the standardised mean? the raw change? the change as a percentage of the previous score? These are difficult choices. We strongly recommend people against using the percentage change, and instead favour the standardised value (often called the Z score or standard score). Generally, improvement is easier at the beginning, and each additional improvement gets harder. In business, the experience curve describes this effect – progress becomes logarithmically harder. Firms will generally rise as often as they fall, so looking at percentage change can be misleading. The more you progress, each additional gain will tend to be smaller, but that may look to some managers as if effectiveness is declining (since the numbers become smaller). The scaling process involved in producing Z scores does scare some people, but it’s the best way to work with quantitative goals.
  5. A Scorecard is more than a Dashboard. Simple dashboards are risky. Dashboards on automobiles, for example, are for real-time adjustment. The symptom and the cause are tightly aligned. The accelerator accelerates you: but there’s no single lever to increase learning, for example, or rapport. Dashboards focus management onto the tactical level. In itself that’s okay, however it’s one-sided. The Scorecard is a tool for strategic alignment — and that is where many, if not most, AR programmes have the most difficulty.
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