With the business scorecard one can describe a business strategy. The problem appears when it is necessary to cascade the scorecard down to business units. The cascading in this case is not just about creating a copy of scorecard that is focused on the local tasks. I would say that the goal is to translate the objectives of the top level scorecard down to the business unit level scorecard.
If done correctly, a business unit where the scorecard is implemented will be a part of company’s coherent strategy. If not, the business unit will continue performing well, but this performance will have nothing to do with the expected strategy results.
These ideas sound obvious, but we often face situations like the one described in this article. Let’s have a look at why this might have happened and what top managers can do in order to see the possible problem with cascading and how to prevent it.
World-class benchmarks for IT scorecard
An international company is implementing the Balanced Scorecard in its head office and key business units. An IT business unit is involved in the implementation as well. When it comes to specific performance metrics, IT managers do some comprehensive research. They find some excellent benchmarks that will ensure that their IT department is one of the best in the world. They focus IT strategy onto data security and server performance issues.
It is not what the company needs!
Over time, top management can get back to their corporate scorecard and find out that something is going wrong. Business units complain about the IT department that doesn’t help them to solve their problems.
Top managers are checking out the scorecard of the IT department, but it shows very high performance… According to the IT business unit, the company now has the fastest performing servers and they are protected with the latest data security technologies, making it almost impossible to attack the company’s website and databases.
What’s wrong with the IT department then? What’s wrong with their scorecard or with the strategy that they were executing?
Analysis of the alignment problem
Fortunately, the problem was noticed early and the company has enough time to find the reason for the problem and to fix it. It appeared that the IT business unit targeted its priorities using world-class benchmarks, but that was not what the company actually needed.
The reason for the problem was not with the IT department, and it was not with the metrics – the problem was with the lack of alignment between the head office strategy and the IT business unit’s strategy. In simple words, top managers forgot to explain what it means “to be the best IT department” in this particular case.
One of the company’s priorities was to implement a new CRM system that could be integrated with the lead generation system and would help the company to sell more. For the IT department it was not a priority, because their strategy, metrics, and as a result, their actions, were not aligned with the strategy of the head office.
As a result, the scorecard of the IT department was built using industry excellence benchmarks, but those benchmarks had nothing to do with the company’s current objectives.
How can we provide this type of alignment?
The head office’s business scorecard is focused on top-level priorities. It needs to be cascaded down to the lower levels of the organization. The idea is to translate the strategy to other business units, not just to give them a copy of the strategy brochure. The IT department still needs to have its own scorecard, but it should be built having the company’s goals in mind.
- The Head office needs not only to formulate top-level objectives, but to also collaborate with business units, so that the business will understand what their role in this strategy is.
The IT department still needs to do basic services at a good level. They still need to provide fast performing servers and ensure a high level of data security. The difference is that the IT department needs to know how it can help the company to execute the strategy effectively.
In most cases it is hard to link top level strategy directly with department level strategy. Neither do we want to overload top level strategy with technical details, nor do we want to complicate a business unit level scorecard with top management jargon.
A linkage scorecard will help to solve this alignment problem. Top managers and managers of the business unit could collaborate to define several objectives and respective metrics that the business unit needs to address to help the company with its strategy execution.
In our example, one of those objectives can be “provide a high-quality operational environment” (fast servers and protected databases), but there also should be objectives that are specific for the business, like implementing a new CRM system that could dramatically improve their lead conversion process.
Linkage Scorecard with BSC Designer
In BSC Designer it is possible to link together two scorecards in several ways. If you use BSC Designer Online to store your projects, then you can create a new “Imported indicator” in the parent project and connect it to the linkage scorecard project.
The data in the linkage scorecard can be uploaded by each business unit manually, or it can be imported automatically from an internal data base using an SQL indicator, or BSC Designer can read an HTTP output of the server.
The strategy and business scorecard needs to be translated to the business units. The translation is not only about sending a copy of a strategy document to a business unit; it is about linking a company’s strategy with the business unit’s strategy. In simple words one need to answer the question: how can this business unit help the company to achieve articulated strategy? The answer can be presented in the form of a business unit strategy and linkage scorecard.
What do you think? How do you cascade scorecards in your company? Do you use a linkage scorecard or some other technique to translate strategy?