Several of my clients recently have asked whether we can assist them with developing an IT balanced scorecard. This note will provide some guidance to our retail industry members on how they can use Info-Tech research blueprints to assist them in developing an IT balanced scorecard for their organizations.
The four most common perspectives used in IT balanced scorecards are:
- Internal IT processes
- Customer Perspective
- Learning and Growth
Jessica Keyes, in her book entitled Implementing the IT Balanced Scorecard, identifies the goals of an information technology (IT) balanced scorecard as:
- Align IT plans with business goals and needs.
- Establish appropriate measures for evaluating the effectiveness of IT.
- Align employees’ efforts toward achieving IT objectives.
- Stimulate and improve IT performance.
- Achieve balanced results across stakeholder groups.
Robert S. Kaplan and David P. Norton, in a Harvard Business Review article entitled “Putting the Balanced Scorecard to Work” (September-October 1993), depicted the relationships between the four perspectives as follows: investments in learning and growth should lead to improved internal processes, resulting in increased customer value and in turn to improved finances for the organization.
Keyes also maintains that for an IT balanced scorecard to work effectively, the balanced scorecard approach must be adopted by the organization as a whole. That is, IT departments implementing balanced scorecards in isolation are likely to fail. It is only when the organization develops an organization-wide set of linked, or cascading, scorecards (i.e. starting with the organization’s strategic objectives and cascading downward to departmental objectives and metrics, team objectives and metrics, and finally to individual objectives and metrics) that there can be any hope of success.
Keyes also found that organization-wide scorecards are often hampered by the absence of an effective approach to organizational strategy:
- 95 per cent of a typical workforce does not understand its organization’s strategy
- 90 per cent of organizations fail to execute their strategies successfully
- 86 per cent of executive teams spend less than one hour per month discussing strategy
- 70 per cent of organizations do not link middle management incentives to strategy
- 60 per cent of organizations do not link strategy to budgeting
As Info-Tech’s research has demonstrated, to be truly effective the IT strategy must be clearly aligned with the strategies, goals, and objectives of the organization. Our research also finds that business stakeholders are 3.5 times more likely to be highly satisfied with IT if there is an effective IT strategy in place.
In developing a balanced scorecard, it is not enough to use the usual IT metrics. To be effective, then, the IT scorecard must incorporate measures that demonstrate the value IT provides to the business and that directly support the organization’s strategies and goals. Key to this is having IT viewed as a strategic partner of the business rather than simply a cost center or utility.
Valence Howden, principal research director at Info-Tech, puts it this way:
The key to identifying how IT produces business value is to understand the manner in which IT generates value.
IT provides value by maintaining the value of existing services and functions it provides, eliminating services that are no longer of value, and creating new value.This is true whether IT operates as a utility, a broad enabler of business value closer to the user experience, or represents the entire value chain of value provision from end to end.
If we cannot trace IT’s spend and activities back to where they maintain or create business value, then there is no true purpose or reason for that money to be spent or those activities to be carried out.”
Refer to Info-Tech’s Maximize Business Value From IT Through Benefits Realization and Build an IT Budget That Demonstrates Value Delivery for more.
Keyes suggests that the support IT provides to the organization’s strategy can be assessed by calculating the percent of enterprise strategic goals and requirements supported by IT strategic goals, percent of resources devoted to strategic projects, percent time spent by IT manager in meetings with corporate executives, and the perceived relationship between IT management and top management.
Info-Tech’s Reference Architecture for the Retail Industry can be a useful tool in assessing the coverage of business value streams and business capabilities supported by existing technologies throughout the organization.
Other typical metrics used to assess the value provided by IT and its alignment with the organization’s strategies include:
- Percent of approved decisions that met benefits expectation
- Number of decisions made beyond risk tolerance and appetite
- Business satisfaction with IT’s strategic alignment (e.g. Info-Tech’s CIO Business Vision diagnostic survey that helps align IT strategy with institutional goals)
- Level of stakeholder satisfaction and perceived value
- Percentage of on-cycle vs. off-cycle projects by area/silo
- Realized benefit to organizational units based on investment mix
- Target vs. actual budget
- Number of off-cycle projects causing delays to planned projects
Now let’s look at the four common perspectives and how they might be scored in the retail industry.
The retail industry typically assesses its financial performance in terms of sales growth, profitability, market share, and shareholder value. IT should ensure that its capabilities include the means to track these corporate indicators.
Internal IT financial performance and the value it provides can be assessed in terms of changes in the percentage of the organization’s budget devoted to IT, opex and project budget vs. actuals, success of the chargeback model, cost of telecommunications per employee, and return on IT investments.
Internal IT processes:
In the retail industry, typical performance indicators of effective internal processes include product quality, on-time delivery of products, inventory management, and revenue per employee. IT capabilities that can support these business indicators might include, for example, the ability to track the number of defects and product returns.
Keyes discusses Compaq’s balanced scorecard and reengineering efforts as an example of how IT can contribute to improved internal processes:
The newly enhanced processes and accompanying systems allowed Compaq to achieve the following process efficiencies:
- Linking orders electronically to suppliers. This improved cycle time and facilitated just-in-time (JIT) manufacturing. It also made production status information available to customers so that they could track their own orders
- Sharing information with suppliers enabled Compaq to anticipate changes in demand and ultimately improve its efficiency. This reduced the cost of supplies and improved on-time delivery
- Integrating orders with SAP’s financial management and production planning modules enabled Compaq to reduce time and cost of orders
- Capturing customer information after a sale enabled Compaq to provide individualized service and additional marketing opportunities
IT process performance metrics might include:
- Problem ticket, incident, and work order volumes and problem resolution times
- Number of security incidents or events
- Service management SLAs
- Effectiveness of IT governance and project portfolio management (PPM)
- Project on-time/on cost delivery
- Development function point analysis
- Project rework and bug tracking
- Infrastructure performance and uptime statistics
- IT audit results
Regular internal IT assessments of process maturity (e.g. Info-Tech’s COBIT-based IT Management & Governance Diagnostic) can also be helpful in identifying processes that may be underperforming. Also see:
- Build and Deliver an Optimized IT Update Presentation
- Develop Meaningful Service Metrics to Ensure Business and User Satisfaction
In the retail industry, some common metrics used to assess customer satisfaction include product quality, product price, customer satisfaction ratings, and customer retention. IT should focus on capabilities that support these metrics. IT can, for example, assess the usability of its customer-facing technologies through metrics such as number of customer visits to various pages of customer-facing portals or websites, or how much time customers spend on each page. Implementation of a CRM capability can directly affect customer service and satisfaction.
Within IT, professionals sometimes lose sight of the fact that they exist primarily to provide service. It is important that IT have a means of measuring the level of satisfaction with its services and determining which services are of the greatest value to its client.
Customer perspectives can best be determined by conducting annual satisfaction surveys like Info-Tech’s CIO Business Vision diagnostic. Another way to improve customer satisfaction is through establishment of a business relationship management function. See Transform IT Into a Value Creator With Business Relationship Management.
Valuable project feedback can be obtained through post-project retrospectives or project sponsor satisfaction surveys.
Learning and growth:
According to Kaplan and Norton’s “The Balanced Scorecard – Measures that Drive Performance” (Harvard Business Review, January-February, 1992), “Global competition requires companies to make continual improvement to their existing products and processes and have the ability to introduce new products in order to deliver value for customers, improve operating efficiency and thereby increasing shareholder value.”
Ability to innovate and develop new products can be an important retail industry indicator to assess learning and growth.
Within IT, examples of useful metrics in this area may include staff satisfaction surveys, turnover rates, budget devoted to staff training, and number of staff acquiring expertise or certifications in various disciplines, methodologies, or technologies.
Helpful references include the following Info-Tech research:
- Improve Employee Engagement to Drive IT Performance
- Effectively Recognize IT Employees
- Develop IT Staff Capabilities
A fifth perspective in retail
In addition to the four perspectives discussed above, because of the importance of ERP systems in retail and manufacturing (e.g. production planning and control, warehouse management), Keyes suggests utilizing a fifth perspective at the system or application (i.e. ERP) level using metrics related to the ERP system implementation success, improvements in processing times, customer usage of the system, and so on.