Sometimes when an organization begins a business intelligence initiative (BI) they are so excited about data visualization and data transparency in the form of dashboards that the first thing they want to do is start measuring everything. I believe that strategy comes before measures and those organizations that thoughtfully and purposefully align what they are measuring to their strategic plan achieve more meaningful long-term results from their BI initiative.
The Balanced Scorecard is a performance management system designed to align, measure, and communicate how well an organization’s activities are supporting the strategic vision and mission of the organization.
It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to create a more ‘balanced’ view of organizational performance. Four strategic perspectives are addressed within the Balanced Scorecard framework:
- Internal Processes – commonly includes technology, systems, etc.
- Learning and Growth (aka “Organization Capacity”) – commonly includes people, training, etc.
Objectives (goals) are set for each perspective, measures (numbers) that represent things to be measured (such as sales, customers, returns) are identified and can then be transformed into ratios or counts, which serve as Key Performance Indicators (KPIs). Initiatives (projects) are undertaken in order to “move the needle” in a positive direction on the KPI gage for that measure.
Balanced Scorecard dashboards include both leading and lagging indicators. For example, customer and financial KPIs are traditionally lagging indicators – the numbers indicate what has already happened. KPIs for the two perspectives of internal processes and learning/growth are leading indicators. This is because positive results achieved with respect to internal processes and learning/growth initiatives should lead to a positive result in the customer and financial KPIs.
Gartner is a leader in the field of information technology research and they organize BI capabilities into three main categories: analysis, information delivery and integration. The concept of “scorecards” fits into their BI analysis category. Gartner recognizes that tying the metrics displayed in a dashboard to an organization’s strategy map ensures that the most important things are being measured, because each measure on a scorecard is tied to the organization’s strategic plan. Sounds obvious right? But it’s still relatively rare and that’s a subject for another post.
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