Companies more and more are relying on the concept of a balanced scorecard to help gauge the success of business objectives, with enterprises using technology and data to determine whether goals are being met. With the use of scorecards growing, an XML-based effort is under way to enable integration of disparate scorecard applications.
“What we’re seeing over the past couple years is that technology and business are no longer separate,” said Laura Downing, vice-president at Balanced Scorecard Collaborative in Lincoln, Mass., a services firm that facilitates the use of scorecards. “Strategic-level decisions can be made with technology because the data executives need to make those decisions is at their fingertips.”
The balanced scorecard was created by Drs. David Norton and Robert Kaplan in 1992, who co-authored a book on the subject and founded the Balanced Scorecard Collaborative.
Since its inception, the use of scorecards has been spreading, albeit slowly. But recent studies demonstrate that the idea is picking up steam among large corporations.
As defined by the Balanced Scorecard Collaborative, a balanced scorecard is “a multidimensional framework for describing, implementing, and managing strategy at all levels of an enterprise by linking objectives, initiatives, and measures to an organization’s overall strategy.”
In other words, it is a means of measuring the success of a number of enterprise aspects, such as human resources and IT, to make sure they are all performing optimally and working toward the company’s ultimate goal of profitability – rather than just looking at the bottom line.
Statistics confirmed recently by Stamford, Conn.-based consultancy Meta Group suggest that during the next 12 months the percentage of U.S. companies using balanced scorecards will rise to 38 per cent, up from last year’s 27 per cent.
Closely in line with Meta Group’s numbers, a study from the market research firm Gartner in Stamford, Conn., predicts that by year’s end about 40 per cent of the U.S. Fortune 1000 will have implemented a balanced scorecard.
As the theory has been catching on, a number of applications vendors have added balanced scorecard applications to their repertoires. ERP vendors, such as Oracle, SAP, and PeopleSoft, offer balanced scorecard applications.
Scorecards, for instance, enable organizations to measure the performance of processes such as business planning and simulation, performance management and stakeholder communication.
“The idea is a wake-up call to enterprises to look at the things they can directly control that will lead to profitability,” said Doug Laney, vice-president of application delivery strategies at Meta Group. “You can’t directly control profits, but there are things you can control that add to profitability.”
The most obvious example here – and e-business really brought this to the forefront – is managing customers. Understanding how to gain, service and retain customers has always been tricky, but when going to another source for goods or services is as easy as navigating to a different Web page, the whole issue becomes that much more complex.
That is where scorecard applications come in. But one of the biggest problems facing scorecards is companies typically install the applications in different parts of the organization, and then as the applications become more prevalent they realize the need to tie them together, according to Henry Morris, vice-president of data warehousing and knowledge management at market research firm IDC in Framingham, Mass.
To ease the use of scorecards, in September 1998 the Balanced Scorecard Collaborative published functional standards for scorecards.
Now a pending XML-based standard promises to further the use of balanced scorecards by integrating disparate scorecard applications.
SAS Institute in Cary, N.C.; ABC Technologies, in Beaverton, Ore.; and Computer Sciences, in El Segundo, Calif., are jointly working to create and propose an XML standard that will facilitate seamless integration between scorecard applications.
“The standard will help companies understand what drives value in the organization,” said Jonathan Hornby, strategic manager for organizational performance at SAS. “Companies can look at business processes and determine how changing that process will affect everything else.”
Hornby said the three companies have been tinkering with the specification for about six months now, and that a version suited for proposal will likely be completed next year.
Meta Group’s Laney said that through scorecards companies learn which aspects of their business to concentrate on.
“We found that the most important key performance measures were not related to profits, they were related to a company’s service levels and product offerings,” Laney said.