Archive for Balanced Scorecard

Balanced Scorecard and Business Intelligence

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:
  1. Customer 
  2. Financial 
  3. Internal Processes – commonly includes technology, systems, etc.
  4. 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.

What is Business Intelligence?

What is business intelligence?  The first thing that may come to mind is a flashy dashboard with cool gauges, graphs and pie charts. Some people associate the term with complex multi-million dollar data warehouse projects.  “Business Intelligence” is actually an umbrella term that includes aspects of the fields of data mining, data visualization, predictive analytics, cluster analysis, big data and even artificial intelligence.  It’s used so broadly and so often that it is almost meaningless as a noun.

To me, business intelligence is a verb.  It’s a process designed to improve performance by using data to make decisions.  The outputs of a business intelligence initiative are often dashboards and reports that use data visualization techniques – but the outcome of a business intelligence initiative is the ability to make data-driven decisions to achieve strategic objectives.  
 
Many associations are not really sure how to begin a business intelligence (BI) initiative.  There is confusion about how to scope a BI project, as well as what to measure and how to determine the Key Performance Indicators (KPIs).   My experience is that 80% of the work in a business intelligence project is not technical, but includes the less glamorous but absolutely critical components of data source identification, data definition, data cleansing, as well as the most important aspect: obtaining organization buy-in and educating the staff on the importance and benefits of the BI initiative.
 
I believe that when it comes to BI, Stephen R. Covey was right when he said, “begin with the end in mind.” I recently attained my Balanced Scorecard Professional certification from the Balanced Scorecard Institute because I recognize the importance of doing the right things right – and for BI that means starting with the organization’s strategic plan.
 
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 that organization.  The most important thing that I learned is that every major initiative that an organization undertakes should tie directly back to their strategic plan (these are the “right things”) and should be measured (doing “things right“).  Therefore, KPIs should measure those activities that support the four perspectives of the Balanced Scorecard: Customer, Financial, Internal Process and Learning/Growth (also referred to as Organization Capacity).  In future posts I’ll explain the process of creating a Balanced Scorecard but the main point of this post is that successful business intelligence initiatives begin with the end in mind and start with the process of identifying those activities that support the organization’s strategic plan.