All too often we find out way too late that the strategy is not working, or the systems are not performing. When the customer opens a defective product, it is too late! While you might be able to delight the customer with your responsive fix, it is much more expensive to fix problems after delivery than it is to prevent problems. In some cases, the “fix” wipes out all of the profit and more.
We also need feedback as early as we can get it on how the strategies are working so we can make adjustments. A strategy is an untested “hypothesis” that we create. We use our current understanding of the external and internal factors to develop what we think will work best for our customers (patients, students, primary beneficiaries, etc.). However, until we implement the strategy, we don’t know if our hypothesis is correct. When it comes to organization strategy, the results of a hypothesis are seldom simply, did the strategy work or not work. The results are often mixed, AND we can adjust our strategy to change the outcome if we have feedback early enough in the process.
Not only do we need feedback as early in the process as possible, but we also need a deep understanding of how the system works so that we can understand what the measures mean for downstream performance.
However, as Dr. Deming pointed out in his book Out of the Crisis,
The most important figures that one needs for management are unknown or unknowable (Lloyd S. Nelson, director of statistical methods for the Nashua corporation), but successful management must nevertheless take account of them (p. 121).”
A comprehensive scorecard is the sixth component of the Leadership System.
Developing a comprehensive scorecard for an organization can be a daunting task. Never fear! The selection process and criteria help you break it down into individual tasks and questions for each measure that you consider. Use this process regardless of the type of measure you are considering.
For each existing or proposed measure answer the following five questions in order:
- Stakeholder or Regulatory Requirement? Do we have to measure this? If “YES” then add it to the scorecard. If “NO” then see #2
- Actionable? If we did measure it, could we take action on the results? The trick is to measure what is useful vs. what is simply easy to measure. If “NO” then drop it. If “YES” then see #3, 4, 5. If the answer to any one of the following is “YES” then add the measure to the scorecard. If the answer to ALL three is “NO” then drop it.
- Stakeholders – Will it help us understand the value created for a stakeholder?
- Systems – Will it help us manage and improve the systems in the organization?
- Strategy – Will it help us develop and deploy the strategy?
You may find many measures that you will answer “YES” to two or three of the criteria 3, 4, and 5. That is OK. Getting the measures into the right “bucket” is not important. The goal is to eliminate those measures that will not provide the insights needed to manage and improve the organization.
So how do you come up with the candidate measures?
Developing a Comprehensive Scorecard
Developing a scorecard is an iterative process, but there is a sequence that will help you get started reviewing and revising your current measures and filling in the gaps. Start with the value chain or execution excellence metrics, then the learning and innovation measures, and finally the strategic leadership measures.
Execution Excellence – The sequence to identify execution excellence measures is the reverse of the value chain production. We begin with the customer and market measures which are the ultimate test of the value chain. Then identify the product and service quality measures that “predict” customer satisfaction. Then identify the operations and support (product development, production, and delivery) measures that predict product and service performance. Then the supplier and partner measures predict the operations, product, and service performance.
Learning and Innovation – The value chain doesn’t exist without people to bring it to life. Identify the key indicators of workforce capability and capacity. Include not only the measures of current capability but also the development efforts, engagement, and innovation. A variety of knowledge and information systems support the learning and innovation processes. These systems provide the data needed, in the format best suited to understand and improve the organization.
Strategic Leadership – Finally, identify the key measures for leadership and strategy as well as governance and social responsibility. These measures provide insights into the key strategic outcomes and risks and rewards associated with sustainability.
When identifying the metrics develop operational definitions that will result in capturing and displaying three key dimensions including the current level of performance, the trend over time, and comparisons to other high performing organizations and industry leaders. When identifying comparison sources and measures remember that the journey to sustainable excellence is about being excellent, not average. Avoid industry averages and focus instead on top performers. In the beginning, the comparison might not be pleasant, but it will be valuable.
Enjoy the journey!