What activity actually earns us the most money? Are our customers happy with our services? What are our employees thinking? Questions such as these are unavoidable for managers in the running of their companies. Control solutions such as the Balanced Scorecard (BSC) can provide answers to these questions. This instrument enables both quantitative and qualitative indicators to be measured, including employee and customer satisfaction or the efficiency of business processes.
The Balanced Scorecard is suitable for all industries. However, the BSC is too comprehensive to be applied to simple issues, such as standard sales tasks, due to its multi-layered approach and comparatively large number of parameters. As a rule of thumb, the more complex and innovative a process is, the more help a BSC can be in evaluating KPIs.
Wide range of company areas involved
The BSC has proved its usefulness in the manufacturing industry, where new business models are deployed more rigorously than in other industries. Examples of this would be opening new production sites or launching the production of new models, such as in the 5000 x 5000 project at Volkswagen AG. This saw the corporation implement brand new specifications setting out how many cars were to be manufactured under what conditions and in what time. A BSC is well suited to controlling a comprehensive strategy of this type. At present over 50 percent of companies in the manufacturing industry use BSCs for controlling in at least some areas of the company.
For a BSC to be a success, all data sources need to provide up-to-date and consistent data (single point of truth). This is the only way that a BSC can deliver a transparent and accurate flow of information for decision-making and company controlling. However, most companies do not currently have a uniform database in place.
Once a company has opted for a BSC, it must assess which indicators it wants to include in the various quadrants of the BSC. To maintain transparency, a maximum of five to ten indicators should be used in each quadrant. The original BSC, developed by the American economists Robert S. Kaplan and David P. Norton, contains the quadrants “Process” (internal processes), “Financial”, “People” (learning and growth), and “Customers”. Many companies now adapt the instrument to their own needs.
In the production industry the launch of a new product line is a good reason to implement a Balanced Scorecard, since this process involves the interlinking of many complex, generally IT-based processes. The BSC is a “balanced” controlling element as it links the ongoing processes and involves a wide range of company areas. It enables both aspects of the integration and also qualitative and financial indicators to be displayed at a glance.
SOA facilitates implementation
Consistent data warehouse solutions are crucial in the technical implementation of an IT-based Balanced Scorecard. Ideally the indicators should be recorded automatically via web-controlled workflow systems. The IT manager should agree in advance with the relevant departments who will supply what information to which location and at what time. The data warehouse merges the data from the various applications, such as Customer Relationship Management or Product Lifecycle Management solutions. The data is output via output systems.
Once the data route from the input to the output has been established, the applications need to be integrated. The company can decide between classical EAI and ETL solutions (Enterprise Application Integration/ Extract, Transform, Load) or opt for a more flexible SOA (Service-Oriented Architecture). A SOA enables data and process sources to be mapped easily, even on heterogeneous systems, since the SOA deploys IT services as a kind of encapsulated intermediate layer that can be used for the IT-based BSC. Furthermore, key elements of a SOA, such as a sophisticated privilege rules, enable data for the BSC to be merged in a Business Intelligence tool. The SOA architecture also enables companies to react flexibly to process changes and interactions in the application landscape and to implement a BSC efficiently, consistently, and cost-effectively.
Keeping an eye on the service provider
The introduction of a BSC poses a considerable challenge for a company’s IT. Conversely, the instrument enables the company to ascertain whether its IT is actually actively supporting business processes. For example, companies can use a BSC to measure the success of change management processes or ascertain how IT costs are allocated per user and what factors influence them. Suitable specifications for developing indicators can be found in the frameworks of the IT Infrastructure Library (ITIL) or IT Service Management (ITSM) from HP. The process models – for instance for service support and service delivery – of ITIL and ITSM which is based upon it, ensure that IT can optimally support business processes in the individual company areas.
A BSC is also useful if a company outsources its IT to external service providers and wants to evaluate the quality of the services it buys in. Manufacturing companies are forerunners when it comes to outsourcing. According to a current study by Pierre Audoin Consultants (PAC), over ten percent of manufacturing companies outsource their IT and associated services. By way of comparison, this figure is around five percent in the financial and retail sectors.
In order to measure the quality of outsourced IT services, the quadrants of the BSC can be divided up as follows: The “Operations” quadrant provides information about the number of error messages that occur over a specific period or how quickly the service provider responds to them. The “Costs” quadrant displays how expensive the IT services are per user. The “People” quadrant shows how satisfied employees are with the external IT services. The fourth quadrant can be used for specific strategic projects as required, such as the implementation of a new CRM application.
Managers can use both quantitative and qualitative factors to determine valid indicators. System response times or downtimes are typical examples of quantitative factors. Qualitative factors, such as users’ satisfaction with a particular service, are more difficult to measure. Such information is gleaned from regular surveys of the employees. A further aspect in this context is the focus on the most important indicators that refer for instance to maintaining existing service-level agreements (SLAs). In this case the BSC is an ideal tool for monitoring the outsourcing service provider.