Balanced Scorecard helps measure IT value

Senior management unhappy with the return on their company’s IT investment may be lacking a measurement regime to help recognize the value they already have, according to one expert.

Robert Gold, practice leader for integrated offerings at Chicago-based Compass America Inc., a performance improvement consultancy, said a measurement tool such as the Balanced Scorecard (BSC) is well suited to the challenge facing CEOs and IT executives – how to measure, understand and improve the value that information technology delivers to the business.

“The idea of having a measurement program in place, any measurement program, is to be able to enrich the dialogue that exists between senior management and IT,” Gold explained. “In the absence of a measurement program, what the senior management is typically looking at when they look at IT is. ‘It’s costing more and more each year and what am I getting for it?'”

And this, Gold said, is where the balanced scorecard can make a difference.

Developed by Robert S. Kaplan, of Harvard Business School, and consultant David Norton, the BSC is a strategic tool used to measure and improve organizational performance.

This database-based report card measures key IT performance indicators and publishes it for interested parties. This establishes a process for continuous feedback and adjustment through data collection.

According to Gold, the balanced scorecard allows organizations to do three things: align the behaviour of people in the organization with strategic objectives and goals, communicate performance throughout the community of stakeholders, and chart the attainment of specific objectives for the realization of benefits of programs or changes that are planned.

The power of the BSC model lies in the linkages between four measurement perspectives: finance, customer, internal process and learning and innovation.

As with the purchase of an automobile, Gold said, it’s not sufficient to simply look at the finance perspective or the initial purchase price.

“You need to understand the miles per gallon, the features, the reliability and maybe how many people you’re carrying. These are all dimensions of the expenditure on an automobile that is not revealed when you simply look at how much it’s costing and how it will fit into your monthly budget.”

Similarly, while the financial indicators of a company may be useful for the investment community, they do little for managers inside the firm, Gold said.

“The financial indicators tell you what has happened, not what is going to happen,” Gold said, whereas the other three perspectives can suggest what the firm will be doing in the future by looking at factors such as customer retention, labour hours spent on a task, and investments in employee training.

Gold offers two pieces of advice for implementing a balanced scorecard.

First, “it’s important to dedicate a resource, person or group of people to the task and ensure that they have a clear objective in mind,” he said, so that they are able to envision the benefit of a measurement program and are not just doing measurement for the sake of it.

Second, he suggested, take an outside perspective. “It is very easy to have people inside an organization develop measures that are biased in terms of their own biased view.”

This is not to suggest that companies can’t do this themselves, Gold said, but “people who are able to step out of their ordinary role and look at the performance of the organization as a whole are better equipped to lead the effort.”

Additionally, Gold noted, the process does not need to be all-encompassing. “It is better to get a small number of measures in place and get a program going where you are measuring once a quarter or once a month and then add to it,” Gold explained.