Six Sigma


Quality Management
A. Blanton Godfrey

Building A Scorecard

Change is an undeniable fact of business, and measurement systems are not immune.

One of the hot topics in the past few years has been corporate measurement systems. The subject draws crowds at seminars and workshops around the world.

 Despite the numerous articles, workshops and books available on the concept, people in many different organizations struggle to actually construct such a measurement system. Most of the attempts have faltered, and measurement tools with much promise fail to deliver the expected results.

 The need for some kind of scorecard is clear. Business has changed dramatically in the past few years. The new competitive agenda is forcing a focus on customers, reduced cycle times, continuous improvement, maximizing intellectual assets and a strategic perspective to all operations.

 Most of our current accounting procedures are heavily biased by external reporting requirements. Our measurement systems have been designed to meet the corporate measurement systems, which are dominated by financial measures rather than by our own needs. We lack measurements in key areas that create value: innovation and creativity, workforce knowledge, intellectual property and assets, organizational culture, and ability to proactively change.

 Many companies start building a good business scorecard from the bottom up. It has been my experience that most organizations are more successful when they start from the top down. A company that begins with the strategic plan, key strategies and strategic goals finds it far easier to closely tie the scorecard with organizational objectives and to implement the completed plan. Missing areas are quickly identified, and the strategic plan is modified to include goals in overlooked areas.

 Thus, the first step is clearly to review the strategic plan. Are there any missing key areas? What measures are missing for key areas? Are the drivers for all key areas identified and measured? Are all key results areas linked horizontally and aligned vertically? How are the measurements presented? Who reviews the measurements and how are they used? How often are the measurements reviewed, revised, improved or eliminated?

 The second step is to create the framework for the scorecard. First, review and agree on the key strategies needed in the strategic plan. Next, review and complete the strategic goals, subgoals and annual goals that support these key strategies. Then develop the first draft of the measures to track each of these goals using existing measures whenever possible and leaving the areas for missing measures blank or marked "to be determined." Share this draft with all business units and functions and collect comments. Appoint leaders for each key strategy and a support team to help develop and deploy needed measures. Create an overall structure for reviewing the work of the teams and bringing all of the pieces together. Expect that there will be overlap and conflicts.

 These teams will need representation from finance, human resources, information systems, operations and quality. There may be similar teams at corporate levels in the business units and in the key functions. People from the business units will contribute to the corporate scorecard and translate the scorecard to the more detailed measurements needed by the business units.

 The third step is to review all existing measures. Many of the existing measures will be satisfactory, but they will probably be in different formats, levels of detail, and styles with varying definitions and measurement frequencies. These will need to be standardized across business units and functions. Some key strategies and strategic goals may have poor or missing measures (measurements on the drivers of the results are often missing). Some areas may require "stepping stone" measures.

 The fourth step is to create the draft scorecard. This draft contains the agreed-upon formats, definitions and presentation styles. There may also be significant gaps. Review the card with senior managers, decide reporting frequencies and get work plans for completing missing areas approved. Compare the new scorecard with existing reports. Produce the new scorecard in parallel with the existing reports until people are comfortable with discontinuing the old reports. This may take a year.

 The fifth step involves a great deal of work. Expand the existing measures and standardized formats to all business units. Identify missing measures and create work actions to develop them. Review measures used by other organizations and adapt and apply as many as possible.

 Now comes the hard part--implementing the new scorecard. You may have to issue it in parallel with existing reports for some time. You'll have to fight hard to keep from just incorporating both the old and the new; instead, remove the misleading or partially correct measures and replace them with improved measures. Train all managers how to interpret and use the new reports and continuously revise and improve the reports.

 For most organizations, the process will take several years. Creating good measures for employee learning and career development is not a trivial task. Effective measures for customer satisfaction, retention and loyalty may be even harder to create. Change will continue to be a way of life, so our measurement systems and scorecards have to be continuously improved.

About the author

 A. Blanton Godfrey is chairman and CEO of Juran Institute Inc. in Wilton, Connecticut. E-mail him at agodfrey@qualitydigest.com .

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