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Useful Balanced Scorecard Indicators Provide Information (Not Just Data)

I have a problem – a problem with what looks like our apparent preoccupation with data as the answer to our business challenges and operational problems, as the key to FINALLY understanding what our stakeholders and customers want, and as the crystal ball that will help us successfully peer into (and even predict) the future so that we can, with certainty, focus on the things that will truly help us get ahead.

Don’t get me wrong – I like data as much as the next info-geek and business leader. However, what I’m really searching for through any measurement effort is INFORMATION. That is, the content and knowledgeable insights that help us, together, make sense of what the numbers are telling us and then figure out what we should do next.

The concepts behind moneyball suggest that human intuition and instincts are often misleading (causing us to focus on exactly the wrong things for the results we are trying to achieve) and I wouldn’t completely disagree. Often, trouble isn’t too far behind when we make decisions on gut feel alone or, worse, based on entrenched ideas of the way things are/should be.

However, while I agree that we should be striving to make key business decisions based on facts, I think that business leaders need to be very wary of a swing of the pendulum to an over-reliance on data alone. The current infatuation with big data and KPI’s are signs to me that this is happening.

There’s no doubt that data can shine a light on what may have previously been just a black box to us, however, numbers alone can be a mystery themselves. In fact, numbers on their own don’t, in my experience, really tell you much conclusively.

Have you ever noticed that, when a group of people look at the same performance results data, they see different things? I see this happen all the time. This individual sees a critical opportunity. Another sees significant problems that require an immediate response. Still others see something that makes everyone else say “Huh?” No wonder there’s no consensus about what the data means and what it’s telling us.

So what’s going on in this scenario? It turns out that when we look at data we interpret what we are looking at from our own perspective, knowledge, and biases.

And while you can argue that data, and the facts they present, are black and white, it’s important to acknowledge that we look at and make sense of them in context.

This is exactly why presenting data without context can be dangerous.

So what is the nature of context?

Within the Balanced Scorecard approach to performance measurement and data presentment, context is provided by two important features: performance targets and color-coded performance ranges. Comparing actual results data against a target first lets us know how the results we are looking at “measure up” in relation to where we wanted or expected to be. Next, color-coded performance tells us, when we have a performance gap, how big and problematic that gap is. Most organizations will define what response is required when a certain performance color-code has been achieved. For example, a yellow may automatically prompt a root cause analysis but make a corrective action plan discretionary while a red may require a root cause analysis and corrective action plan – no questions asked.

However, many Balanced Scorecards stop here. And while this context goes a long way to building organizational consensus that results data are telling us (1) whether or not we have a problem; and (2) whether or not a response is required, there’s still something pretty important missing: the critical INFORMATION required for informed decision-making.

Information, in the form of the (1) data with context, (2) expert analysis and commentary, (3) additional, relevant information and documentation, and (4) the organizational conversations that drive a consistent understanding of what the data is telling us AND enable the generation of a consistent organizational response to business performance results, goes beyond context and is the key to making better, more informed business decisions.

So, how can you increase the power of your Balanced Scorecard as a decision-making tool? Here are four steps you can take today to make information the key component of your Balanced Scorecard.

1 If not included already, add performance targets and color-coded or icon-assigned performance ranges to your Balanced Scorecard to provide high level context. While this is easy to include in any Balanced Scorecard application, it often takes work to get people to agree to performance targets and performance ranges. Building consensus up front helps minimize disagreements and allows you to automate the task of setting the preliminary context for results data.

2 Assign indicator commentary ownership and integrate data and commentary in a single view of Balanced Scorecard results. Unfortunately, many commercial Balanced Scorecard applications make this difficult to do so you may find this challenging to implement. Implement any necessary work arounds to implement this step.

3 What other information would help everyone have a fuller understanding of performance (i.e. the results data and the analysis/commentary)? Project charters, meeting notes, and links to external websites are just some examples of auxiliary information sources that add value. Include links to key information sources with data and commentary in that single view of Balanced Scorecard results. Many good Balanced Scorecard applications will enable you do this.

4 Make the focus of Balanced Scorecard results review meetings less about the results data and more about exploring, and building consensus on, what the results mean, what they’re telling us, and what, if anything we should do about it. Most Balanced Scorecard meetings I attend are boring recitations of the results. Make your Balanced Scorecard meetings more interesting, productive, and valuable by enabling the group, through dialogue, to make sense of available performance information and then make the required business decisions based on that information.

By taking these four important steps you can successfully shift the focus of your Balanced Scorecard and performance management efforts from data to information. When you do, don’t be surprised to see the quality and efficiency of your organization’s decision-making activities increase exponentially!

 

BONUS!  BONUS!  BONUS!

Learn what GREAT results commentary actually looks like AND when it should be added to your Balanced Scorecard.

Simply click on the link below to watch my short presentation Adding Results Analysis and Commentary to Your Balanced Scorecard – learn the “essentials” plus my tips and tricks now!

Click Here to Watch the Presentation

1 Comment

  1. Mihai Ionescu
    Apr 24, 2015

    Very nice presentation on a quite interesting subject. There are organizations that make it mandatory for the Objectives & KPI owners to comment, at every measurement interval, the Objectives & KPIs that have a red status or have changed from green to yellow.

    However, the root-cause analysis of the negative results, as well as the possible corrective actions, need to be much deeper embedded into the system than the superficial KPI comment notes layer.

    The analysis should be built-in from the system design, and include:
    (a) The combination of Lead-Lag KPIs, leading to an Objective status that shows not just the actual results, but also the positive or negative trend of Objective’s accomplishment
    (b) The linkage between Initiatives, on one side, and Objectives and KPI/KRI Measures, on the other side, showing which Initiatives were expected to produce the effects that determine Objective’s accomplishment
    (c) The Driving-Driven Objectives cause-effect relationships, showing the favorable or negative contribution of diving Objective’s statuses (with the propagation lag-time considered) to the status of the Objective being evaluated
    (d) The aggregation of Child-Objectives’ statuses, showing if the Objective’s status is due to one or more of the aligned child business units

    If we need to start fresh our causal & corrective analysis by just looking at the KPIs and at their comment notes, we could still pull this through, but far from efficient and possibly introducing new sources of subjectivity and ad-hoc judgement into a system that is already striving for coherence.

    So, the commentaries can certainly add additional useful information to the statuses and to their evaluation and correction, but they are far from being enough for the successful [strategic] performance management.