Maintenance Performance Indicators “Balanced Scorecard"
Luis Amendola, Ph.DUniversidad Politécnica de Valencia, SpainAsociación Española de Mantenimientoe-mail: luiam@dpi.upv.es, luigipmm@yahoo.es
En Español
Key words: Indicators, Reliability, Business, Strategy
Summary: The transformation that had happened in the world business in the last years has created the need of the substantial and supported improvement of the operational and financial results of the maintenance in the enterprise. This has carry out the search and application of new and more efficiently techniques of management and measurement of the performance of the business of maintenance. The technical financial indicators must permit in one side to identify which are the strategies that should be followed to achieve the business vision in an enterprise (a high performance) and on the other hand they must express those strategies in specific objectives that would have as goal the measurement of the whole indicators of the business. In a process of transformation, in order to be adapt to the requirements of the dynamic world and new era of maintenance, the leaders of the enterprises of the world or enterprises of “World Class”, this guide us to a systematic vision of the business environment, identifying the roles and needs of every factor, with an orientation of the plans of evaluation of the results and definition of the strategies in the maintenance business.
1. Introduction
The management of the maintenance is seen in many corporations as a service or like a centre of cost, assigning short attention to the opportunities that today have the intelligence of the business, that cover all the administrative and operational functions of maintenance. The enterprises and organizations of maintenance measure their performance just with the technical indicators, leaving in a side the System of Measurement of the Performance Balanced Scorecard and financial indicators EVA (Economic Value Added), ROI (Return Over Investment) and ROCE (Return on Capital Employed).
The maintainer use to sell their plans and projects elderly terms as “Save”, “Operational Loss” or “Avoid cost” that are used like indicators for justified the advance in the maintenance management.
The industrial maintenance is breaking everyday the barriers of the past. Today in the practice a lot of enterprises, managers of maintenance have to think that is a business to invest in actives of maintenance and stop looking at it as a cost. This change is happening in the world of maintenance and have created the need of a substantial and sustained improvement of the operational and financial results of the enterprises, all this has took us to the progressive search of the application of new and more efficiently techniques and managerial practices of planning and measurement of the performance of the business. This integral vision of the business allows the maintenance organizations to take decisions (figure 1), give the pursuit and establish plans of action in order to achieve the goals of the company. The maintenance management through out the technical and financial indicators of the organization are the graphic representation of the maintenance situation, and also known by the abbreviation in English KPI (Key Performance Indicator).
Figure 1. Strategic Value
The technical and financial indicators allow to identify which are the strategies that must be follow in order to achieve the enterprise vision (a high performance), on the other hand, they express this strategies in specific objectives that have a measurable goal through the whole performance of technical-financial indicators, in a process of transformation consecutively adapting to the exigencies of the changes and challenges that we should face in medium rum.
Between the factors that could arise in this evolution is the orientation toward the systematic vision of the importance of the maintenance business, identifying the challenges and needs of each one of the factors involved (stakeholders), this take us to the reorientation of the evaluation of the result plans and the definition of the strategies of the technical and financial indicators to measure the profitability of the business.
2. System of Measure the performance of the financial indicators
Actually must be taken into account, the tendency of the consideration of the financial indicators in the performance of the business maintenance. The importance of invest to create future value, and not only in the traditional areas of development such as new installation or new equipments, moreover in the maintenance of the actual actives, all this make us look for the implementation of economic indicators in the management of the maintenance actives.
Balanced Scorecard (BSC) means to translate the strategy into four perspectives: customer, internal business, innovation and learning and financial perspective, each one of them sustained in a set of objectives, management indicators, goals, interactively connected in a relation cause-effect. The BSC goes from the vision and the strategy of the enterprise. From here all the objectives are defined in order to achieve the vision, and this would be the result of the mechanisms and strategies that control the results of the customers.
Economic Value Added (EVA) this product is obtained with the difference between the profitability of the actives and the cost of finance the capital required to have them. This is one of the best measures of the creation of financial value in an enterprise. A company could add value when benefits are obtained and in this way cover all the costs, including the capital ones. Representing a goal of real economic benefits produced by an enterprise in an established period, and indicating the efficiency in which the operational active have been managed.
Return Over Investment (ROI) is an estimation of the benefit (the “return”) about the money spend (the “invest”) in a particular alternative, and consist in the determination of the benefit, calculation of cost and summarize the results.
Return on the Capital Employed (ROCE) is calculated expressing the profitability before the payment of the interest and taxes as a portion of the total capital employed in the business. This indicator shows a global perspective of the financial situation of the business, and is the initial analysis of the performance of the business and a parameter which you could compare its global performance.
Figure 2. Balanced System of Indicators
3. Technical Indicators of the Maintenance
The technical indicators are related with the quality of maintenance management and allow seeing the operational behaviour of the installation, system, equipment and device; additionally they measure the quality of the work and the grade of complimenting the plans of maintenance.
Mean Time to fail (MTTF) is an expected value or average of the time of the aleatory variable of failure. This indicator measures the average of time that the equipment could operate with all their capacities and without any interruption in the considered period, and is the mutual of the rate of failure in an exponential distribution of the aleatory variable.
Mean Time to Repair (MTTR) is the measure of the distribution of time repairing the equipment or system. In a different way, the TPPR measures the effectiveness of the restitution of the unit to optimal conditions, once it is out of service by a failure, in an estimated period, and considering the time of failure equal to the time of repairing.
Availability (A) it is defined like the capacity of the equipment or installation to make a required function under specific conditions and in a determinate period of time, taking into account that the external resources are provided. Is a fatalist indicator that translates the results of the maintenance actions to a joined index for an equipment or system. It is based on the question “Is the equipment available and in conditions when it is required?” The analysis of disposability is used to obtain a solution that allows establishing the requirements of the reliability and susceptibility of the maintenance. This is useful to determinate the symbols of the equipment or system, and the frequency and type of occurrence of failure, possibility of reparation (time of active reparation) and analysis of works of maintenance.
Utility (U) it is also known as factor of use or service, it measures the effective time of operation of an active during a determinate period.
Reliability (R) is one of the principal attribute that determinate the effectiveness of the equipment or system. It is defined as the probability that an equipment or system redeem satisfactory the function that is required from it, under specific conditions of operation, during a establish period of time.
4. Strategies and Practices
Actually, the sudden changes in competitive areas, the increasing speed of the globalize tendencies and the impact of the technological gaps define a new business space, where the threat, powers and competition of the factors of the industrial sector are empowered.
In this uncertain environment, the search is focus on the managerial tools, that facilitates the change trough a more strategic management, permanently centred in the vision of the enterprise, with a enormous participation of the personnel and interrelated with the customer, with emphasis in achieving the excellence at the process level, not only let to obtain the technical aim furthermore to keep the hard mechanism of control with the capacity of adjustment the strategic route to the real time.The goal, is to generate a successful and competitive strategy, and be able to achieve excellence results from a process of integrated strategic of management in different areas of the enterprise between them maintenance function, this represent an alteration in the traditional concept of management, as we assume now a position of self control.
The implementation of technical and financial indicators in the management of the maintenance begins with the changes of paradigm that guide us to a strategy and politics of business management.
Balance the maintenance budgets with more integrated schemas “operational, invest and management of the stoppage of plants budget” with the aim of guiding the benefits of the enterprise. With an impact of change in the restrictive politics reducing the costs in an incentive politic of integrated optimization in order to find a higher return of the investment.
In order to establish any program of improvement is required the management and implementation of management financial indicators models. It is important for the enterprises to focus on the profitability, or in how to create a value that justified the use of the resources. In my experience in the management of the maintenance area and others specialists, it has shown that the money in the future would only be available for those organizations that generated an important return on the capital. Low performances, poor intentions of generating results and adverse manners of interacting with the customers, give more costs and less access to them.
The first step trough a bigger and cheaper access to the capital is the definition of profitability in the maintenance business and what the enterprise would do in order to grow. The combination of the technical and financial indicators are the one that the organizations must adopt to measure the profitability/performance, it is very important the implication of the employees.
5. Models of Implementation
The implementation starts with the application of strategies orientated to balance the operational budgets, invest and stoppages of plants conducted to increase the benefits and value of the actives and the productivity capacity. With this orientation we could optimize the benefits and reduce costs.
The strategy considers the compliment of the plans of maintenance, allowing assuring the actives of the enterprise, the reliability, security, productive capacity and active value of the shareholder. The maintenance strategy as return of the investment is directed to increase the value, assure the return of the investment and maximization of the benefits of the active, with this model the decision are orientated to support plans and actions in order to create value on active cycle life.
The EVA (Economic Value Added) = Income – Expenditure – Capital Costs; this define the total strategy with the rest of the business indicators (ROI, ROCE) and BSC; its objective is to analyze the technical indicators of the equipment, to establish the areas where the incomes could be improved with the maintenance strategies and where the expenditures could be reduced and the use of capital optimized. The strategy takes us to estimate the impact of the VEA. If we base on the indicators we could establish the opportunities of improvement the investment in resources, promoting the analysis of sensibility of the indicators to determinate which initiation could generate more return of the resources invested.
The application of the strategy must change into a plan directed to make stronger the financial indicators of the business, improving the way of working and the culture of the enterprise. The implementation should be measured and monitored with base to specific indicators and execute with a high level team, where the advances could be acknowledge by all the company. Requiring specific plans of action in each area as per the opportunities detected locally and performing in an integrated and coordinated way in order to generate the economic impact in the business.
Define objectives and indicators that ask to the business expectations with reference to the financial parameters: Growth, Benefits, Return of the capital and use o the capital, and have as purpose the maximization of the Added Value, the increase of the incomes and the improvement of the efficiency of the operations.
At the beginning the designs of the plan establish a vision of what is followed and what must be achieve (figure 3). Behind the action plans would be established in order to achieve the vision, objectives and financial impact. In this step:
Figure 3. Model of Implementation
The specific initiatives or practices that would be implemented are specified. All personnel would be informed of the general vision and plans. The indicators would be defined in the way to establish the goals and measure the progress. Resources and responsible personnel would be identified to take specific actions and concrete time to achieve them. The advance would be checked periodically and a feedback with the personnel may occur.
It is important to consider that the periodically revision give us the possibility to redesign and innovate the process and activities, taken advantage of the latent opportunities with reference to the continuous improvement or re-engineering of the process (figure 4), in order to reach the expectative of the customer, improve costs, efficiency of the processes and give the correct use to the actives.
This activity of analysis must be strengthened and communicated in the objectives and indicators proposed, they must remark the activities of permanent renovation and improvement of process.
Figure 4. Re engineering and Programs of Exchange
The implementation must supported by documents integrating all the strategically plans of maintenance, indicators, procedures, inventories, hiring, management of human resources and other relevant factors of the management of the working, technological process.
6. Philosophy of World Class
The enterprises are always looking for the excellence, in their process, this model let us get the “World Class” in the maintenance process, directing the efforts to the obtainment of the levels of excellence, in the implementation of 10 practices:
Adapt the organization to work teams.
Contractors oriented to the productivity.
Integration with suppliers of services and raw materials.
Support and managerial vision.
Planning and Proactive programming.
Continuous improvement.
Discipline management of process of material and procurement.
Integration of process and systems.
Management of plant stoppage.
Production Based on the Reliability.
In the implementation of these practices, the objectives of maintenance are established, in all levels, and must be responsible of creating Operational Reliability, from their four perspectives:
Reliability of the Equipments.
Human Reliability.
Reliability of the Process.
Maintainability of the Equipments.
The philosophy of the World Class, implicate the implementation of methodologies and specific keys that empower the obtainment of fast, optimal and lasting results. For this reason, methodologies have been introduced to balance the technical and financial indicators, the ones that would let to obtain the benefits in business of maintenance.
If we base on the last paragraph, as strategic factors of the attention of the business management, in order to achieve the category of the “World Class”, the action must be directed to:
Strengthen the attention in the implementation of recommendations and maintenance plans.
Fortify the training of the maintenance annalists, in a way to guarantee the management and advantages of the data.
Reorient the efforts of the specialists trough the obtainment of the unify diagnostics of the installations, fortifying the natural equipments of work.
Reinforce the process of execution of maintenance process, plants stoppages, from the point of view of the planning and management of changes.
Make stronger the activities of monitoring, diagnostic and control of the operational and functional variables of the processes.
7. Conclusions
The focus of the model of implementation requires establishing a vision of the maintenance business and an action plan, where the practices, initiatives, objectives, indicators and financial goals are specified.
The use of the technical financial indicators give us an orientation to measure the physical and economical advance for the control of the maintenance management balanced for operational, investment and plants stoppages budgets, in the way to search the return of investment improving the reliability of the equipments, human reliability, process reliability and maintainability of the equipments.
The adequate use of the balanced indicators systems, permit to select in a finest way: the frequency of maintenance and inspections, inventory levels, management and optimization of budgets, considering in an objective sense the impact of the failures on the operations, production, security and the environment. In addition helping to reduce the production costs and increasing the value of the actives on the life cycle and enlarging the benefits of the enterprise.
References
Kaplan, R, Norton, D.; “The Balanced Scorecard Measures That Drive Performance” Harvard Business Review. USA, 1992.
Porter, Michael, “What Is Strategy,” Harvard Business Review, 1996.
Norton, David, “Building A Management System to Implement Your Strategy,” Renaissance Solutions. USA, 1996.
Paul R. Nive.; “Balanced Scorecard Step-by-Step Maximizing Performance and Maintenance Results” John Wiley, Inc, New York, USA, 2002.
Terry Wireman.; “Developing Performance Indicators for Managing Maintenance”, Industrial Press, Inc, 1999.
Author:
Luis Amendola, Ph.D is the professor of Department of Projects Engineering, Polytechnic University of Valencia Spain, has over 23 years of experience in the petroleum, gas and petrochemical industry. He has carried out technical positions and management engineering projects, maintenance and business development in international company, PMI membership.
Saturday, July 08, 2006
Out of the shadows
Out of the shadows
By Brian Hayman
The Evaluation of CEOs needs to move from the commuter trains and club dining halls to the boardroom, where it belongs.
It's a pity more CEOs don't use public transportation to get to work, since it's one place where you'll get honest evaluations of the performances of our corporate leaders. Here is an example of one such assessment that I recently overheard on a commuter train: "Have you heard we have a new corporate strategy?""What is it this time?""We're going to become fast-followers.""What does that mean?""It means that we're getting out of the business of doing research. We're going to watch the competition and when they come up with something new, we're going to copy it.""I suppose that's a strategy - I guess it'll save money.""Well, that's certainly the spin the president's putting on it and that's likely how he's selling it to the board.""Why do you say 'spin'?""Because it's not the real reason we're getting out of research.""Which is?""The real reason is that the Old Man's ticked off all the creative people in the engineering department and they've left."What followed next was a carefully measured, articulate assessment of the "Old Man's" management style that depicted an intelligent, energetic, enthusiastic, aggressive, opinionated bully who did not take advice well. In fact, it appeared that he did not take advice at all. "Do you think anybody's going to tell him?" said one commuter to the other, to which he replied: "You have to be kidding." I wondered if the board would buy the "spin" - if they would ever learn what was behind the "fast-follower" strategy. The evaluation of CEOs happens all the time - the task is to get it into the open. And that's not a challenge for technology, it's a challenge for human will. CEOs are the biggest fish in their own ponds and the littler fish who swim with them are, like little fish everywhere, wary of big fish. Wariness can be a good thing; it enlivens the senses and focuses the mind. The wary notice many things that others miss, but mostly they pay attention, figure out how to live with big fish and, above all else, keep their own counsel. This creates the conditions for one of life's wonderful paradoxes - the most powerful are potentially the most vulnerable. This is not surprising when you consider that powerful individuals usually know only what they are told, and they are told only what they want to hear - or what people think they want to hear. Therein lies their vulnerability. Governing boards are an important constituency of CEOs. They represent those who have a stake in the pond where all the fishes swim. They, too, evaluate CEO performance in their own venues - parking lots, the business class sections of aircraft, the dining rooms of their clubs. These are the people who must decide whether the fast-follower strategy makes sense and if the reasons for adopting it ring true. They, too, are big fish, powerful and vulnerable, and the risks and liabilities attached to that vulnerability have made members of governing boards really wary. It also needs to be said that wary people can become dangerous - just ask the chief executive officers who are currently exploring other opportunities or who have taken early retirement so that they can spend more time with their families. The issue, therefore, isn't the "if" of CEO evaluation but rather the "what" and "how."It is generally agreed that CEO evaluation is inextricably linked to organizational performance but performance, like beauty, is very much in the eye of the beholder and a business has many beholders. Among them are shareholders and institutional investors; consumers and their advocates; employees and, in some cases, their representatives; regulators and accrediting agencies; suppliers of goods and services; the community at large; and a variety of special interest groups. Each of these has its own idea of what is meant by "organizational performance." Adding to the confusion is the fact that businesses don't have a clear idea of their purpose, and that gives the various stakeholders even greater latitude in forming expectations about corporate performance. Arguably, the viability of any organization rests on its ability to satisfy those expectations - not out of a sense of equity but rather because a broad base of support gives it a better chance of survival. Some hold to a limited view of organizational performance, saying that criteria should be determined by management or by a dominant shareholder. The broad view, however, suggests that the criteria should be grounded in the expectations of all stakeholders, resulting in a more complex but more meaningful perspective. It also requires taking the time to determine the "what" of the business, and to agree about the corporate values that will drive the "how." The challenge, then, is to get hold of this large and slippery notion of organizational performance. In the for-profit sector, some mathematical surrogates, such as return on investment or market share, come easily to mind. What numbers do not tell us, of course, is that the Old Man ticked off all the creative people in the engineering department and they left. The figures can tell us that an organization is not fat, but they may not tell us whether it's simply lean (a good thing) or terminally anorexic (a bad thing). As well, invention too often becomes the mother of necessity and means determine the ends: "What does this breathtakingly elegant piece of technology measure? It measures (fill in the blank). Wonderful! Let's call that performance."This does not mean that performance measures are a bad thing. To be meaningful, however, they must be supported by an understanding of business purpose as well as of the instruments and actions chosen by individuals to achieve that end. Performance measures require a holistic view of organizational health and some understanding of the interdependencies between infrastructure, people, culture and environment. They also require some tolerance for uncertainty. They are meant to inform human judgment, not merely to substitute for it. We are making progress in our attempts to find a more integrated way of thinking and talking about organizational performance. Balanced Scorecard and Six Sigma software systems are examples of attempts to find a richer and more comprehensive language with which to do this. There are now "Beyond the Balanced Scorecard" and "Beyond Six Sigma" websites. These technologies do not provide a quick fix to the meaningful assessment of organizational health and performance, but they may offer a framework within which the issue can be addressed and explored. While an organization trying to define performance will have to decide about the technologies and measuring devices to use, there may be far more important choices to make. The notion of "organization" can be as abstract as the notion of "performance" and we have to be able to say who sits at the table making those decisions, and whose performance expectations they represent. Someone has to select these decision-makers but who will it be? Well, for starters, the Old Man and his directors. Now all we have to do is figure out how to get honest evaluators like the eloquent young fellow I overheard on the commuter train to sit at our boardroom tables.
Brian Hayman is a founding partner of The Performance Project and can be contacted at brianhayman@sympatico.ca.
Peter Jackson, CA, Toronto-based consultant in organizational performance and corporate governance.
By Brian Hayman
The Evaluation of CEOs needs to move from the commuter trains and club dining halls to the boardroom, where it belongs.
It's a pity more CEOs don't use public transportation to get to work, since it's one place where you'll get honest evaluations of the performances of our corporate leaders. Here is an example of one such assessment that I recently overheard on a commuter train: "Have you heard we have a new corporate strategy?""What is it this time?""We're going to become fast-followers.""What does that mean?""It means that we're getting out of the business of doing research. We're going to watch the competition and when they come up with something new, we're going to copy it.""I suppose that's a strategy - I guess it'll save money.""Well, that's certainly the spin the president's putting on it and that's likely how he's selling it to the board.""Why do you say 'spin'?""Because it's not the real reason we're getting out of research.""Which is?""The real reason is that the Old Man's ticked off all the creative people in the engineering department and they've left."What followed next was a carefully measured, articulate assessment of the "Old Man's" management style that depicted an intelligent, energetic, enthusiastic, aggressive, opinionated bully who did not take advice well. In fact, it appeared that he did not take advice at all. "Do you think anybody's going to tell him?" said one commuter to the other, to which he replied: "You have to be kidding." I wondered if the board would buy the "spin" - if they would ever learn what was behind the "fast-follower" strategy. The evaluation of CEOs happens all the time - the task is to get it into the open. And that's not a challenge for technology, it's a challenge for human will. CEOs are the biggest fish in their own ponds and the littler fish who swim with them are, like little fish everywhere, wary of big fish. Wariness can be a good thing; it enlivens the senses and focuses the mind. The wary notice many things that others miss, but mostly they pay attention, figure out how to live with big fish and, above all else, keep their own counsel. This creates the conditions for one of life's wonderful paradoxes - the most powerful are potentially the most vulnerable. This is not surprising when you consider that powerful individuals usually know only what they are told, and they are told only what they want to hear - or what people think they want to hear. Therein lies their vulnerability. Governing boards are an important constituency of CEOs. They represent those who have a stake in the pond where all the fishes swim. They, too, evaluate CEO performance in their own venues - parking lots, the business class sections of aircraft, the dining rooms of their clubs. These are the people who must decide whether the fast-follower strategy makes sense and if the reasons for adopting it ring true. They, too, are big fish, powerful and vulnerable, and the risks and liabilities attached to that vulnerability have made members of governing boards really wary. It also needs to be said that wary people can become dangerous - just ask the chief executive officers who are currently exploring other opportunities or who have taken early retirement so that they can spend more time with their families. The issue, therefore, isn't the "if" of CEO evaluation but rather the "what" and "how."It is generally agreed that CEO evaluation is inextricably linked to organizational performance but performance, like beauty, is very much in the eye of the beholder and a business has many beholders. Among them are shareholders and institutional investors; consumers and their advocates; employees and, in some cases, their representatives; regulators and accrediting agencies; suppliers of goods and services; the community at large; and a variety of special interest groups. Each of these has its own idea of what is meant by "organizational performance." Adding to the confusion is the fact that businesses don't have a clear idea of their purpose, and that gives the various stakeholders even greater latitude in forming expectations about corporate performance. Arguably, the viability of any organization rests on its ability to satisfy those expectations - not out of a sense of equity but rather because a broad base of support gives it a better chance of survival. Some hold to a limited view of organizational performance, saying that criteria should be determined by management or by a dominant shareholder. The broad view, however, suggests that the criteria should be grounded in the expectations of all stakeholders, resulting in a more complex but more meaningful perspective. It also requires taking the time to determine the "what" of the business, and to agree about the corporate values that will drive the "how." The challenge, then, is to get hold of this large and slippery notion of organizational performance. In the for-profit sector, some mathematical surrogates, such as return on investment or market share, come easily to mind. What numbers do not tell us, of course, is that the Old Man ticked off all the creative people in the engineering department and they left. The figures can tell us that an organization is not fat, but they may not tell us whether it's simply lean (a good thing) or terminally anorexic (a bad thing). As well, invention too often becomes the mother of necessity and means determine the ends: "What does this breathtakingly elegant piece of technology measure? It measures (fill in the blank). Wonderful! Let's call that performance."This does not mean that performance measures are a bad thing. To be meaningful, however, they must be supported by an understanding of business purpose as well as of the instruments and actions chosen by individuals to achieve that end. Performance measures require a holistic view of organizational health and some understanding of the interdependencies between infrastructure, people, culture and environment. They also require some tolerance for uncertainty. They are meant to inform human judgment, not merely to substitute for it. We are making progress in our attempts to find a more integrated way of thinking and talking about organizational performance. Balanced Scorecard and Six Sigma software systems are examples of attempts to find a richer and more comprehensive language with which to do this. There are now "Beyond the Balanced Scorecard" and "Beyond Six Sigma" websites. These technologies do not provide a quick fix to the meaningful assessment of organizational health and performance, but they may offer a framework within which the issue can be addressed and explored. While an organization trying to define performance will have to decide about the technologies and measuring devices to use, there may be far more important choices to make. The notion of "organization" can be as abstract as the notion of "performance" and we have to be able to say who sits at the table making those decisions, and whose performance expectations they represent. Someone has to select these decision-makers but who will it be? Well, for starters, the Old Man and his directors. Now all we have to do is figure out how to get honest evaluators like the eloquent young fellow I overheard on the commuter train to sit at our boardroom tables.
Brian Hayman is a founding partner of The Performance Project and can be contacted at brianhayman@sympatico.ca.
Peter Jackson, CA, Toronto-based consultant in organizational performance and corporate governance.
The Ethics Perspective
The Ethics Perspective
© Paul Arveson, 2002
In the fall of 2001, Americans experienced a new depth of evil. Following the attacks on two cities, the mail system was attacked with Anthrax and electronic systems were attacked with the CodeRed and other viruses. We have a new awareness of forces that seek to do unlimited harm to society. We sense that we are quite vulnerable to random attacks in a variety of ways, and it is unlikely that the government can stop all of them.
But our society has also been subjected to a threat which appears to have had a more serious and lasting effect on our economy than the terrorist attacks. Some corporations have defrauded the public on the unprecedented scale of many billions of dollars. We have witnessed the consequences of conflicts of interest by auditors and stockbrokers. Piracy of software and music is widespread across the Internet, and counterfeiting of prescription drugs is leading to many deaths. Bogus "alternative" medicines and phony diet treatments are everywhere. Our regulatory institutions, such as the Securities and Exchange Commission (SEC), the Federal Trade Commission (FTC) and the Food and Drug Administration (FDA), seem unable to respond adequately to these new forces of fraud.
The Mercatus Report on Government Accountability for 1999 concluded:
"... Government has the same fiduciary responsibility to taxpayers that companies have to their shareholders. Agency reports should mirror standards required in the reports of Fortune 500 companies, which suffer severe penalties if they fail to report accurately and ethically to their shareholders."
How ironic it is, in these post-Enron times, that the regulatory status of the private sector would be held up as a standard for government accountability! Criminal and civil litigation against Enron, Andersen, and other corporations is likely to continue for many years, with billions of dollars at stake.
In a first effort to restore trust in corporations, the Sarbanes-Oxley Act now requires the CEOs and CFOs of large corporations to sign an affidavit certifying the accuracy of their financial reports. They must certify that to the best of their knowledge, "No covered report contained an untrue statement of material fact ..."
But how can executives know for sure that everything in these reports is true? Of course, assuring this is the reason for the enormous effort and cost that goes into the maintenance of accurate accounting data in any organization, along with independent audits and inspections. However, as we have seen, financial audits can be misleading or untrustworthy. Loss of credibility has led to the collapase of at least one major accounting firm, and the breakup of others. In the wake of these accounting scandals, it is evident that fraud or at least misleading statements are widely distributed in companies. The suspicion of this -- whether justified or not -- is causing a retreat of investors from the entire stock market.
We have learned once again that the crucial factor for economic health is trust. Without trust, business could not function, and the economy would degenerate back to barter. It is this assault on our sense of trust, more than the overt acts of terrorism, that has created a lasting downward pressure on markets.
"Trust but Verify"
Corporate governance has become an important new concern in our society. But signed affidavits do not by themselves justify trust. Legislation alone, although beneficial and well-intended, cannot guarantee trust. The size and complexity of modern corporations and governmental organizations is such that no one can know everything that is going on. Executives have to trust their subordinates and vice versa. Inspectors and auditors have to invest a significant amount of trust in those who supply them with documents. And investors have to trust the information provided to them by company managers. Even a police state like the Soviet Union could not know enough about its people, and it collapsed under its own weight. A society, to be a society, must depend on the internalized "good faith" and trust of a significant majority of its members.
Trust is also extremely important in the technologies we use to share information. We can use "secure" means of communication, such as encryption and digital certificates, but how can we verify that our networks are truly secure? Often in recent times we have discovered, too late, holes and security lapses that we had assumed were not there. In the wake of heavy criticism, even Microsoft's Bill Gates has distributed his thoughts about the need for "trustworthy computing". But he only refers to the technical aspects of security. This alone is an insufficient guarantee. As long as human beings are involved in a process, there will be the possibility of deceit.
The original balanced scorecard emphasized the importance of employee learning and growth as the foundation of success, and the source of innovation that leads to target-breaking performance. This is certainly valid, but recall that the managers of Enron were all highly educated professionals. Yet their education served only to make them more clever and evasive in building a fradulent corporation. Education is not enough.
Sound business ethics must be practiced in order to rebuild trust in a company, and in our entire economic system. Underlying all of the other features of a healthy organization, there must be an abundance of good will, transparency and ethical behavior. Because of the pervasive importance of customer and investor trust, I suggest that ethical business behavior should be included in the "learning and growth" perspective of the balanced scorecard, or that an ethical business culture should be added as a fifth perspective where appropriate.
Measures of Corporate Ethics
But how can you measure ethical performance? Balanced scorecard designers, of course, routinely encounter aspects of performance that are qualitative and hard to measure. Perhaps this is the hardest - but it is not impossible. Based on the principles that "he who is faithful in the least will be faithful also in much" and "a tree is known by its fruit", here are some possible metrics to consider (metrics with asterisks (*) are also relevant in public-sector organizations):
Metric
Rationale
Level of business ethics training*
Modern business is complex; we must not assume that the rules of ethical behavior are known without training and evaluation of employees. This could also include training on the company's own business principles.
Morale of employees*
If a company doesn't treat its own employees fairly, how fair can it be to outsiders?
Openness, transparency*
Do executives hide behind spin and obfuscation? Is there a lot of secrecy?
Candor*
Do leaders report bad news as well as good news? Are they self-critical? Do they take responsibility?
Turnover rate*
If high, may indicate employee dissatisfaction.
Union relations*
If constantly strained, may indicate perceptions of distrust by employees.
Hotline*
Do employees have access to an anonymous communication channel to managers or inspectors?
Nepotism*
It may be more likely for family members to share dishonest practices, to exclude more-qualified managers, or to be distracted by infighting.
Community involvement*
Do the managers care about their neighbors?
Criminal records*
Public records may be available for some executives.
Driving records*
Bad driving may be a symptom of other problems.
Extravagance*
Managers' use of corporate resources, opulence of buildings, homes, etc. may be excessive.
Environmental awareness*
Do they leave all the lights on? Do they recycle? Do they pollute?
Employee policies*
Are employee policies in line with industry, or excessively stringent?
Resignations*
Executive resignations, other than for age, may indicate conflicts.
Employee diversity*
Is it representative of the general population?
Whistleblowers*
If any, what are they saying? How are they treated?
Inspectors, Regulators*
US govt. agencies - see Inspector General reports. Stock investors should check the EDGAR database. For occupational safety, check for OSHA violations. For foods and drugs, check the FDA. For consumer products, check CPSC. For vehicles, check NHTSA.
Transparency*
Financial and related company data should be reported frequently and openly on web sites.
Charitable giving; foundations
Altruistic behavior is difficult for crooks.
Work hours
Long hours mean stressed employees.
Lobbying expenses
Excessive, multi-party lobbying efforts were an Enron trademark.
Legal expenses
Too many lawsuits and lawyers on the payroll may indicate a defensive or aggressive culture.
Insider trading
New rules require prompt reporting within days.
Taxes paid
No taxes? Maybe the company is being too clever.
Cash flow
Better indicator of health than stock price.
Dividends
Company cannot cheat with payouts of dividends.
401(K) plans
May employees invest other than in company stock?
Stock options
Are they expensed?
Bond ratings
Indicates analysts' estimates of company's ability to pay its debts.
Social responsibility
Is company stock included in a socially responsible mutual fund? (See lists)
A collection of such metrics may show trends that are not visible in corporate annual reports or on the resumes of distinguished executives. But these traditional sources of data have recently been found to be lacking and misleading. Behavior-based metrics such as the above may provide a better overall view of the level of corporate ethical culture. (Of course, there are no guaranteesthat these metrics will be sufficient indicators of trustworthy or ethical behavior). As much as we know that clever people can deceive, we also know we must depend on clever people to expose deceit.
© Paul Arveson, 2002
In the fall of 2001, Americans experienced a new depth of evil. Following the attacks on two cities, the mail system was attacked with Anthrax and electronic systems were attacked with the CodeRed and other viruses. We have a new awareness of forces that seek to do unlimited harm to society. We sense that we are quite vulnerable to random attacks in a variety of ways, and it is unlikely that the government can stop all of them.
But our society has also been subjected to a threat which appears to have had a more serious and lasting effect on our economy than the terrorist attacks. Some corporations have defrauded the public on the unprecedented scale of many billions of dollars. We have witnessed the consequences of conflicts of interest by auditors and stockbrokers. Piracy of software and music is widespread across the Internet, and counterfeiting of prescription drugs is leading to many deaths. Bogus "alternative" medicines and phony diet treatments are everywhere. Our regulatory institutions, such as the Securities and Exchange Commission (SEC), the Federal Trade Commission (FTC) and the Food and Drug Administration (FDA), seem unable to respond adequately to these new forces of fraud.
The Mercatus Report on Government Accountability for 1999 concluded:
"... Government has the same fiduciary responsibility to taxpayers that companies have to their shareholders. Agency reports should mirror standards required in the reports of Fortune 500 companies, which suffer severe penalties if they fail to report accurately and ethically to their shareholders."
How ironic it is, in these post-Enron times, that the regulatory status of the private sector would be held up as a standard for government accountability! Criminal and civil litigation against Enron, Andersen, and other corporations is likely to continue for many years, with billions of dollars at stake.
In a first effort to restore trust in corporations, the Sarbanes-Oxley Act now requires the CEOs and CFOs of large corporations to sign an affidavit certifying the accuracy of their financial reports. They must certify that to the best of their knowledge, "No covered report contained an untrue statement of material fact ..."
But how can executives know for sure that everything in these reports is true? Of course, assuring this is the reason for the enormous effort and cost that goes into the maintenance of accurate accounting data in any organization, along with independent audits and inspections. However, as we have seen, financial audits can be misleading or untrustworthy. Loss of credibility has led to the collapase of at least one major accounting firm, and the breakup of others. In the wake of these accounting scandals, it is evident that fraud or at least misleading statements are widely distributed in companies. The suspicion of this -- whether justified or not -- is causing a retreat of investors from the entire stock market.
We have learned once again that the crucial factor for economic health is trust. Without trust, business could not function, and the economy would degenerate back to barter. It is this assault on our sense of trust, more than the overt acts of terrorism, that has created a lasting downward pressure on markets.
"Trust but Verify"
Corporate governance has become an important new concern in our society. But signed affidavits do not by themselves justify trust. Legislation alone, although beneficial and well-intended, cannot guarantee trust. The size and complexity of modern corporations and governmental organizations is such that no one can know everything that is going on. Executives have to trust their subordinates and vice versa. Inspectors and auditors have to invest a significant amount of trust in those who supply them with documents. And investors have to trust the information provided to them by company managers. Even a police state like the Soviet Union could not know enough about its people, and it collapsed under its own weight. A society, to be a society, must depend on the internalized "good faith" and trust of a significant majority of its members.
Trust is also extremely important in the technologies we use to share information. We can use "secure" means of communication, such as encryption and digital certificates, but how can we verify that our networks are truly secure? Often in recent times we have discovered, too late, holes and security lapses that we had assumed were not there. In the wake of heavy criticism, even Microsoft's Bill Gates has distributed his thoughts about the need for "trustworthy computing". But he only refers to the technical aspects of security. This alone is an insufficient guarantee. As long as human beings are involved in a process, there will be the possibility of deceit.
The original balanced scorecard emphasized the importance of employee learning and growth as the foundation of success, and the source of innovation that leads to target-breaking performance. This is certainly valid, but recall that the managers of Enron were all highly educated professionals. Yet their education served only to make them more clever and evasive in building a fradulent corporation. Education is not enough.
Sound business ethics must be practiced in order to rebuild trust in a company, and in our entire economic system. Underlying all of the other features of a healthy organization, there must be an abundance of good will, transparency and ethical behavior. Because of the pervasive importance of customer and investor trust, I suggest that ethical business behavior should be included in the "learning and growth" perspective of the balanced scorecard, or that an ethical business culture should be added as a fifth perspective where appropriate.
Measures of Corporate Ethics
But how can you measure ethical performance? Balanced scorecard designers, of course, routinely encounter aspects of performance that are qualitative and hard to measure. Perhaps this is the hardest - but it is not impossible. Based on the principles that "he who is faithful in the least will be faithful also in much" and "a tree is known by its fruit", here are some possible metrics to consider (metrics with asterisks (*) are also relevant in public-sector organizations):
Metric
Rationale
Level of business ethics training*
Modern business is complex; we must not assume that the rules of ethical behavior are known without training and evaluation of employees. This could also include training on the company's own business principles.
Morale of employees*
If a company doesn't treat its own employees fairly, how fair can it be to outsiders?
Openness, transparency*
Do executives hide behind spin and obfuscation? Is there a lot of secrecy?
Candor*
Do leaders report bad news as well as good news? Are they self-critical? Do they take responsibility?
Turnover rate*
If high, may indicate employee dissatisfaction.
Union relations*
If constantly strained, may indicate perceptions of distrust by employees.
Hotline*
Do employees have access to an anonymous communication channel to managers or inspectors?
Nepotism*
It may be more likely for family members to share dishonest practices, to exclude more-qualified managers, or to be distracted by infighting.
Community involvement*
Do the managers care about their neighbors?
Criminal records*
Public records may be available for some executives.
Driving records*
Bad driving may be a symptom of other problems.
Extravagance*
Managers' use of corporate resources, opulence of buildings, homes, etc. may be excessive.
Environmental awareness*
Do they leave all the lights on? Do they recycle? Do they pollute?
Employee policies*
Are employee policies in line with industry, or excessively stringent?
Resignations*
Executive resignations, other than for age, may indicate conflicts.
Employee diversity*
Is it representative of the general population?
Whistleblowers*
If any, what are they saying? How are they treated?
Inspectors, Regulators*
US govt. agencies - see Inspector General reports. Stock investors should check the EDGAR database. For occupational safety, check for OSHA violations. For foods and drugs, check the FDA. For consumer products, check CPSC. For vehicles, check NHTSA.
Transparency*
Financial and related company data should be reported frequently and openly on web sites.
Charitable giving; foundations
Altruistic behavior is difficult for crooks.
Work hours
Long hours mean stressed employees.
Lobbying expenses
Excessive, multi-party lobbying efforts were an Enron trademark.
Legal expenses
Too many lawsuits and lawyers on the payroll may indicate a defensive or aggressive culture.
Insider trading
New rules require prompt reporting within days.
Taxes paid
No taxes? Maybe the company is being too clever.
Cash flow
Better indicator of health than stock price.
Dividends
Company cannot cheat with payouts of dividends.
401(K) plans
May employees invest other than in company stock?
Stock options
Are they expensed?
Bond ratings
Indicates analysts' estimates of company's ability to pay its debts.
Social responsibility
Is company stock included in a socially responsible mutual fund? (See lists)
A collection of such metrics may show trends that are not visible in corporate annual reports or on the resumes of distinguished executives. But these traditional sources of data have recently been found to be lacking and misleading. Behavior-based metrics such as the above may provide a better overall view of the level of corporate ethical culture. (Of course, there are no guaranteesthat these metrics will be sufficient indicators of trustworthy or ethical behavior). As much as we know that clever people can deceive, we also know we must depend on clever people to expose deceit.
Maximize Organizational Performance
Maximize Organizational Performance
Article published in DM Direct NewsletterSeptember 21, 2001 Issue
By Greg Wynne
Ever try to put together a puzzle when some of the pieces were missing? Today, some corporations are attempting exactly that.
More than ever, sustaining competitive advantage requires a close focus on business performance - the more control companies have over their performance, the better their chances of success. However, if there are missing pieces of information, difficulties in integrating enterprise data will frustrate efforts to develop a realistic picture of business performance. By integrating the factors that impact organizational performance, Web-based balanced scorecard applications position companies for establishing enterprise-wide strategic initiatives and evaluating their success.
Any formal approach to business performance starts with definition and measurement. Traditionally, financial systems almost exclusively focused on external financial reporting, defining performance in terms of profit/loss. The data for the financial results came from the company's financial systems - information in other systems was largely ignored. Figures were tailored for external audiences and had no basis for informed internal decision making. If a company did access information sources in addition to financial information, traditional processes were ineffective in integrating and displaying the data.
Achieving a Balance
The concept of the balanced scorecard revolutionizes traditional performance measurement and corporate decision-making systems by providing the big picture of company performance from key angles. Originating from the work of Dr. Robert Kaplan and Dr. David Norton, the balanced scorecard is a corporate performance measurement practice that incorporates four major perspectives: the employee learning and growth perspective, the internal business process perspective, the customer's perspective and the financial perspective.
Financial performance is important, but solid financial improvements result from improved effectiveness of employee learning and growth, internal business processes and customer service in that order. It is these three perspectives that build upon each other to drive healthy financials.
Companies that address any given corporate goal from all four perspectives have a balanced approach and, therefore, a greater chance of success and growth. Clearly, companies must go deeper than financial performance to affect financial results. By focusing on more than one perspective, organizations can address significant questions that indirectly affect finances such as: what is my turnover ratio, how much delay is there from order to shipment, what is the average hold time for customer support?
Maximizing the Balanced Scorecard
The most effective balanced scorecard applications today are Web deployed. From a company intranet to a pure Internet solution, Web-based applications provide for the most diverse data collection and evaluation. These applications can gather, arrange and display custom data views in real time from any PC or workstation. In addition, business intelligence can appear on every desktop - portals allow delivery based on the role of the employee.
Today's technology boosts the benefits of the balanced scorecard exponentially by integrating and automating data retrieval from the diverse areas of an organization. Management can most easily align performance with corporate strategies when the relevant data is displayed from a desired angle according to user-specified criteria.
The success of Web-deployed balanced scorecard applications also stems from ease of use. People with very little training can take advantage of valuable information that affects their performance and rewards. Internet/intranet balanced scorecard deployment is key to widespread alignment with corporate goals, providing the information access and internal communication essential for employee management.
Motivating Employees
Every employee can make the balanced scorecard a part of the work process. A successfully deployed scorecard gives employees a measure of how they are doing against the company's larger goals.
For example, an employee packing stock for shipment can quantitatively see how he has a direct positive impact on market share by exceeding quotas for shipping each day. The management hierarchy for this employee starts with measurable but high-level goals and objectives such as increasing profitability, expanding customer base and so on. However, his balanced scorecard shows him and his manager a ground-level view of how his specific activities contribute to top-level initiatives.
There are two significant management benefits for employee accountability using a Web-based balanced scorecard. The first is exception-based reporting. Problems gain visibility quickly at higher management levels because balanced scorecard statistics are available almost immediately. In addition, analytics help pinpoint possible causes of a problem whether it is the employee, the product, demographics or other factors.
The second main benefit is that a balanced scorecard is extremely effective in giving employees accurately measured and delivered incentives to work toward for the greater good of the company. Many companies will increase their employees' sense of ownership and participation by setting up performance-related incentives. The employee making shipments in the earlier example might have a bonus tied to exceeding his quotas. By viewing his progress in a Web-based balanced scorecard application, this employee knows what to do to reach specific goals generated by management.
Using Web technology to distribute balanced scorecard information boosts the employees' personal stake in the company. For example, everyone wants the company stock to go up. Given the scorecard, employees can access up-to-date information on how they affect shareholder value.
Measuring Success
A Web-based balanced scorecard for customer performance can access a variety of key indicators that provide a complete picture of a company's performance with respect to its customers. Such performance indicators might include profitability by customer and channel, cost-to-support by product and customer, revenue by channel, opportunities in pipeline by territory, customer defection and repeat customer rates, average ROI by campaign and many more.
Balanced scorecard customer analyses help measure success and provide direction. Action based on these analyses can increase and maintain the customer base, help develop effective marketing campaigns, maximize quality and profit, increase on-time deliveries to customers, improve customer interactions and more effectively target employee training.
Similarly, by tapping into an effective analytic system, top management can draw from quantitative and qualitative performance data to make corporate-level decisions. Web-based balanced scorecards address critical success factors to help organize and clarify strategic thinking and build consensus on strategic direction. The results are clear communication of success measures, alignment of behavior on priority initiatives and support for organizational learning.
Integrating Performance Metrics
Maximizing the benefits of a balanced scorecard requires proper sourcing of data from the ground up to support effective Web-based deployment and data availability from a single source of truth.
Addressing Enterprise-Wide Data Collection
When companies set performance objectives, whether for profitability, productivity, customer satisfaction, employee retention or other factors, the required performance measurement data is not specific to any particular part of the organization. Its scope is enterprise-wide.
Collecting information from disparate, largely independent enterprise management systems is a challenge. There might be one system for supply chain management, another for financials, another for HR and yet another for customer relationship management all on different platforms with different databases. Performance monitoring involves integrating performance metrics from all applicable systems to achieve solid balanced scorecard results. The goal: to seamlessly combine data to deliver a single source of corporate truth.
Gathering Data with EPM
A new approach, known as enterprise performance management (EPM), provides a means for data collection far superior to traditional systems. An EPM system gathers information from different areas of a company's operations and uses sophisticated business analytics to provide the big picture of enterprise performance. Balanced scorecard is the measuring and monitoring component of EPM, providing organizations with key performance indicators drawn from the EPM system.
An EPM system works by providing a central repository - the enterprise data warehouse - containing performance- related information from the entire organization. An architecturally sound, well-constructed data warehouse provides important, lasting business benefits.
Using appropriate extract, transform and load (ETL) software, the enterprise warehouse gathers information from heterogeneous sources including transactional and nontransactional systems. Potential sources include data in enterprise resource planning (ERP) systems, financial data, enriched analytic information from other data warehouses and external benchmark information or third-party survey data.
Organizations must establish processes that improve data quality in the enterprise warehouse without impeding data loading activity. Such quality measures involve identifying and correcting data that does not match established business rules.
Enterprise warehouse data is useful in loading individual data marts, which contain a subset of the data organized for a particular analytic application or applications. Loading these data marts directly from source systems allows data integration at the enterprise level. Using the enterprise warehouse results in a unified, common data model and a source of consistent, up-to-date data for all applications.
Conducting Analyses and Sharing Data
All analyses are performed against the data in the warehouse, possibly via a data mart, using analytic applications. Whether broad strategic applications or process-specific applications, they all rely on the same underlying data model. An open model supports the widest possible variety of end-user tools for access and analysis. To ensure the right balanced scorecard information gets to the right people, companies might combine analytic applications with desktop reporting tools.
By integrating a Web-based balanced scorecard with the rest of the analytics system, companies can draw information into a single strategic framework for at-a-glance evaluation. For example, if profitability shows a failing grade on the scorecard, a company can integrate all analytics, underlying reports and business rules to determine the factors involved.
It is crucial that the balanced scorecard is fully integrated with analytics to form a complete EPM system. If data is not shared or is shared inconsistently, a skewed scorecard or conflicting reports result. In some implementations today, executives are accessing completely independent systems, so analysis shows something entirely different from the balanced scorecard. Metrics and business rules definitions must be shared among the analytic system, any existing decision-making system and the balanced scorecard.
Getting the Big Picture
By optimizing balanced scorecard with Web- based, enterprise-wide deployment and by supporting data acquisition with a solid EPM foundation, organizations effectively evaluate business performance against agreed targets and strategies. Informed, tactical decisions result from rapid, integrated data access.
Instead of focusing on a single metric at a time, increasing numbers of organizations are using fully integrated, automated balanced scorecards to successfully align employees with overall business objectives. As a result, these companies manage financial performance effectively and are increasingly competitive in a challenging marketplace.
...............................................................................Check out DMReview.com's resource portals for additional related content, white papers, books and other resources.
Greg Wynne is director of product marketing, Enterprise Performance Management, for PeopleSoft, Inc. He can be reached at gregory_wynne@peoplesoft.com.
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Life Cycle Management - Share Cad With EveryoneShare Cad projects with non-tech users. Get everyone on the same page. Request free information.
Are Collisions Impacting your Server's PerformancesqlSentry highlights schedule overlap and contention issues across your servers ? you can then easily resolve conflicts using an Outlook-style visual calendar and drag and drop! Download the free trial today and see for yourself.
Website tracking, web statistics and analyticsWatch your visitors in real time as they browse your site. Website statistics provide insight. Understanding website traffic and visitor clickstream behavior is crucial to managing a website on a daily basis. Real-Time reporting. 4 week free trial.
Article published in DM Direct NewsletterSeptember 21, 2001 Issue
By Greg Wynne
Ever try to put together a puzzle when some of the pieces were missing? Today, some corporations are attempting exactly that.
More than ever, sustaining competitive advantage requires a close focus on business performance - the more control companies have over their performance, the better their chances of success. However, if there are missing pieces of information, difficulties in integrating enterprise data will frustrate efforts to develop a realistic picture of business performance. By integrating the factors that impact organizational performance, Web-based balanced scorecard applications position companies for establishing enterprise-wide strategic initiatives and evaluating their success.
Any formal approach to business performance starts with definition and measurement. Traditionally, financial systems almost exclusively focused on external financial reporting, defining performance in terms of profit/loss. The data for the financial results came from the company's financial systems - information in other systems was largely ignored. Figures were tailored for external audiences and had no basis for informed internal decision making. If a company did access information sources in addition to financial information, traditional processes were ineffective in integrating and displaying the data.
Achieving a Balance
The concept of the balanced scorecard revolutionizes traditional performance measurement and corporate decision-making systems by providing the big picture of company performance from key angles. Originating from the work of Dr. Robert Kaplan and Dr. David Norton, the balanced scorecard is a corporate performance measurement practice that incorporates four major perspectives: the employee learning and growth perspective, the internal business process perspective, the customer's perspective and the financial perspective.
Financial performance is important, but solid financial improvements result from improved effectiveness of employee learning and growth, internal business processes and customer service in that order. It is these three perspectives that build upon each other to drive healthy financials.
Companies that address any given corporate goal from all four perspectives have a balanced approach and, therefore, a greater chance of success and growth. Clearly, companies must go deeper than financial performance to affect financial results. By focusing on more than one perspective, organizations can address significant questions that indirectly affect finances such as: what is my turnover ratio, how much delay is there from order to shipment, what is the average hold time for customer support?
Maximizing the Balanced Scorecard
The most effective balanced scorecard applications today are Web deployed. From a company intranet to a pure Internet solution, Web-based applications provide for the most diverse data collection and evaluation. These applications can gather, arrange and display custom data views in real time from any PC or workstation. In addition, business intelligence can appear on every desktop - portals allow delivery based on the role of the employee.
Today's technology boosts the benefits of the balanced scorecard exponentially by integrating and automating data retrieval from the diverse areas of an organization. Management can most easily align performance with corporate strategies when the relevant data is displayed from a desired angle according to user-specified criteria.
The success of Web-deployed balanced scorecard applications also stems from ease of use. People with very little training can take advantage of valuable information that affects their performance and rewards. Internet/intranet balanced scorecard deployment is key to widespread alignment with corporate goals, providing the information access and internal communication essential for employee management.
Motivating Employees
Every employee can make the balanced scorecard a part of the work process. A successfully deployed scorecard gives employees a measure of how they are doing against the company's larger goals.
For example, an employee packing stock for shipment can quantitatively see how he has a direct positive impact on market share by exceeding quotas for shipping each day. The management hierarchy for this employee starts with measurable but high-level goals and objectives such as increasing profitability, expanding customer base and so on. However, his balanced scorecard shows him and his manager a ground-level view of how his specific activities contribute to top-level initiatives.
There are two significant management benefits for employee accountability using a Web-based balanced scorecard. The first is exception-based reporting. Problems gain visibility quickly at higher management levels because balanced scorecard statistics are available almost immediately. In addition, analytics help pinpoint possible causes of a problem whether it is the employee, the product, demographics or other factors.
The second main benefit is that a balanced scorecard is extremely effective in giving employees accurately measured and delivered incentives to work toward for the greater good of the company. Many companies will increase their employees' sense of ownership and participation by setting up performance-related incentives. The employee making shipments in the earlier example might have a bonus tied to exceeding his quotas. By viewing his progress in a Web-based balanced scorecard application, this employee knows what to do to reach specific goals generated by management.
Using Web technology to distribute balanced scorecard information boosts the employees' personal stake in the company. For example, everyone wants the company stock to go up. Given the scorecard, employees can access up-to-date information on how they affect shareholder value.
Measuring Success
A Web-based balanced scorecard for customer performance can access a variety of key indicators that provide a complete picture of a company's performance with respect to its customers. Such performance indicators might include profitability by customer and channel, cost-to-support by product and customer, revenue by channel, opportunities in pipeline by territory, customer defection and repeat customer rates, average ROI by campaign and many more.
Balanced scorecard customer analyses help measure success and provide direction. Action based on these analyses can increase and maintain the customer base, help develop effective marketing campaigns, maximize quality and profit, increase on-time deliveries to customers, improve customer interactions and more effectively target employee training.
Similarly, by tapping into an effective analytic system, top management can draw from quantitative and qualitative performance data to make corporate-level decisions. Web-based balanced scorecards address critical success factors to help organize and clarify strategic thinking and build consensus on strategic direction. The results are clear communication of success measures, alignment of behavior on priority initiatives and support for organizational learning.
Integrating Performance Metrics
Maximizing the benefits of a balanced scorecard requires proper sourcing of data from the ground up to support effective Web-based deployment and data availability from a single source of truth.
Addressing Enterprise-Wide Data Collection
When companies set performance objectives, whether for profitability, productivity, customer satisfaction, employee retention or other factors, the required performance measurement data is not specific to any particular part of the organization. Its scope is enterprise-wide.
Collecting information from disparate, largely independent enterprise management systems is a challenge. There might be one system for supply chain management, another for financials, another for HR and yet another for customer relationship management all on different platforms with different databases. Performance monitoring involves integrating performance metrics from all applicable systems to achieve solid balanced scorecard results. The goal: to seamlessly combine data to deliver a single source of corporate truth.
Gathering Data with EPM
A new approach, known as enterprise performance management (EPM), provides a means for data collection far superior to traditional systems. An EPM system gathers information from different areas of a company's operations and uses sophisticated business analytics to provide the big picture of enterprise performance. Balanced scorecard is the measuring and monitoring component of EPM, providing organizations with key performance indicators drawn from the EPM system.
An EPM system works by providing a central repository - the enterprise data warehouse - containing performance- related information from the entire organization. An architecturally sound, well-constructed data warehouse provides important, lasting business benefits.
Using appropriate extract, transform and load (ETL) software, the enterprise warehouse gathers information from heterogeneous sources including transactional and nontransactional systems. Potential sources include data in enterprise resource planning (ERP) systems, financial data, enriched analytic information from other data warehouses and external benchmark information or third-party survey data.
Organizations must establish processes that improve data quality in the enterprise warehouse without impeding data loading activity. Such quality measures involve identifying and correcting data that does not match established business rules.
Enterprise warehouse data is useful in loading individual data marts, which contain a subset of the data organized for a particular analytic application or applications. Loading these data marts directly from source systems allows data integration at the enterprise level. Using the enterprise warehouse results in a unified, common data model and a source of consistent, up-to-date data for all applications.
Conducting Analyses and Sharing Data
All analyses are performed against the data in the warehouse, possibly via a data mart, using analytic applications. Whether broad strategic applications or process-specific applications, they all rely on the same underlying data model. An open model supports the widest possible variety of end-user tools for access and analysis. To ensure the right balanced scorecard information gets to the right people, companies might combine analytic applications with desktop reporting tools.
By integrating a Web-based balanced scorecard with the rest of the analytics system, companies can draw information into a single strategic framework for at-a-glance evaluation. For example, if profitability shows a failing grade on the scorecard, a company can integrate all analytics, underlying reports and business rules to determine the factors involved.
It is crucial that the balanced scorecard is fully integrated with analytics to form a complete EPM system. If data is not shared or is shared inconsistently, a skewed scorecard or conflicting reports result. In some implementations today, executives are accessing completely independent systems, so analysis shows something entirely different from the balanced scorecard. Metrics and business rules definitions must be shared among the analytic system, any existing decision-making system and the balanced scorecard.
Getting the Big Picture
By optimizing balanced scorecard with Web- based, enterprise-wide deployment and by supporting data acquisition with a solid EPM foundation, organizations effectively evaluate business performance against agreed targets and strategies. Informed, tactical decisions result from rapid, integrated data access.
Instead of focusing on a single metric at a time, increasing numbers of organizations are using fully integrated, automated balanced scorecards to successfully align employees with overall business objectives. As a result, these companies manage financial performance effectively and are increasingly competitive in a challenging marketplace.
...............................................................................Check out DMReview.com's resource portals for additional related content, white papers, books and other resources.
Greg Wynne is director of product marketing, Enterprise Performance Management, for PeopleSoft, Inc. He can be reached at gregory_wynne@peoplesoft.com.
Solutions MarketplaceProvided by IndustryBrains
Free Yourself from RISC - Free WhitepaperCostly, inflexible proprietary-based infrastructure can significantly degrade competitive advantage and slow business growth. Learn how Intel standards-based architecture can reduce costs and improve infrastructure agility and performance.
Numara Track-It! Help Desk SoftwareNumara provides Track-It! - the leading help desk solution for call tracking, problem resolution, IT asset management, LAN/PC auditing, patch management, electronic software distribution, remote control, and more. Free demo
Life Cycle Management - Share Cad With EveryoneShare Cad projects with non-tech users. Get everyone on the same page. Request free information.
Are Collisions Impacting your Server's PerformancesqlSentry highlights schedule overlap and contention issues across your servers ? you can then easily resolve conflicts using an Outlook-style visual calendar and drag and drop! Download the free trial today and see for yourself.
Website tracking, web statistics and analyticsWatch your visitors in real time as they browse your site. Website statistics provide insight. Understanding website traffic and visitor clickstream behavior is crucial to managing a website on a daily basis. Real-Time reporting. 4 week free trial.
Performance Balanced Scorecard
Measuring performance with a Performance Balanced Scorecard is quite common and there are wide range of applications for Measuring Performance Balanced Scorecard like performance objective, performance goal, performance measure, performance measurement, and performance management. To frame the dialog and to move forward with a common baseline, certain key concepts need to be clearly defined and understood, such as:
· Measuring Performance Balanced Scorecard is a quantitative or qualitative characterization of performance.
· Performance Measurement: Measuring Performance Balanced Scorecard process of assessing progress toward achieving predetermined goals, including information on the efficiency with which resources are transformed into goods and services (outputs), the quality of those outputs (how well they are delivered to clients and the extent to which clients are satisfied) and outcomes (the results of a program activity compared to its intended purpose), and the effectiveness of government operations in terms of their specific contributions to program objectives.
· Measuring Performance Balanced Scorecard: The use of performance measurement information to effect positive change in organizational culture, systems and processes, by helping to set agreed-upon performance goals, allocating and prioritizing resources, informing managers to either confirm or change current policy or program directions to meet those goals, and sharing results of performance in pursuing those goals.
· Measuring Performance with a Performance Balanced Scorecard as output measure: A calculation or recording of activity or effort that can be expressed in a quantitative or qualitative manner.
· Outcome measure: An assessment of the results of a program compared to its intended purpose.
Measuring Performance with a Balanced Scorecard perforation management system goal: A leading-edge organization seeks to create an efficient and effective performance management system to:
· Translate agency vision into clear measurable outcomes that define success, and that are shared throughout the agency and with customers and stakeholders;
· Provide a tool for assessing, managing, and improving the overall health and success of business systems;
· Continue to shift from prescriptive, audit- and compliance-based oversight to an ongoing, forward-looking strategic partnership involving agency headquarters and field components;
· Include measures of quality, cost, speed, customer service, and employee alignment, motivation, and skills to provide an in-depth, predictive performance management system; and
· Replace existing assessment models with a consistent approach to performance management, though, the measurement of these various elements is often not very co-ordinate and the budget spent on each part also out of synch. So what makes for good measurement on a balanced scorecard business model?
Measuring Performance Balanced Scorecard gives a good measurement. Essentially, it’s all about two basics. The first is having sound metrics on each part of the scorecard. For example, on the employee opinion survey, don't just have employee satisfaction (which can be very passive), but include more proactive measures such as motivation, organizational commitment and product/service advocacy. Also, don't try to measure too much on any one part of the scorecard. For instance, again with your employee opinions measures, an early baseline survey should be used to identify the key drivers of outcomes such as advocacy. The tracking part of the scorecard (what you measure month-on-month or year-on-year), should focus solely on these drivers (i.e. on what is likely to shift your business in the right direction).
The second important element in Measuring Performance Balanced Scorecard is making vital linkages between the data gathered. As the Sears model initially showed, and many unpublished studies have found since, linking the individual measures on the balanced scorecard together can provide a hugely powerful, diagnostic perspective on the performance of a business.
· Measuring Performance Balanced Scorecard is a quantitative or qualitative characterization of performance.
· Performance Measurement: Measuring Performance Balanced Scorecard process of assessing progress toward achieving predetermined goals, including information on the efficiency with which resources are transformed into goods and services (outputs), the quality of those outputs (how well they are delivered to clients and the extent to which clients are satisfied) and outcomes (the results of a program activity compared to its intended purpose), and the effectiveness of government operations in terms of their specific contributions to program objectives.
· Measuring Performance Balanced Scorecard: The use of performance measurement information to effect positive change in organizational culture, systems and processes, by helping to set agreed-upon performance goals, allocating and prioritizing resources, informing managers to either confirm or change current policy or program directions to meet those goals, and sharing results of performance in pursuing those goals.
· Measuring Performance with a Performance Balanced Scorecard as output measure: A calculation or recording of activity or effort that can be expressed in a quantitative or qualitative manner.
· Outcome measure: An assessment of the results of a program compared to its intended purpose.
Measuring Performance with a Balanced Scorecard perforation management system goal: A leading-edge organization seeks to create an efficient and effective performance management system to:
· Translate agency vision into clear measurable outcomes that define success, and that are shared throughout the agency and with customers and stakeholders;
· Provide a tool for assessing, managing, and improving the overall health and success of business systems;
· Continue to shift from prescriptive, audit- and compliance-based oversight to an ongoing, forward-looking strategic partnership involving agency headquarters and field components;
· Include measures of quality, cost, speed, customer service, and employee alignment, motivation, and skills to provide an in-depth, predictive performance management system; and
· Replace existing assessment models with a consistent approach to performance management, though, the measurement of these various elements is often not very co-ordinate and the budget spent on each part also out of synch. So what makes for good measurement on a balanced scorecard business model?
Measuring Performance Balanced Scorecard gives a good measurement. Essentially, it’s all about two basics. The first is having sound metrics on each part of the scorecard. For example, on the employee opinion survey, don't just have employee satisfaction (which can be very passive), but include more proactive measures such as motivation, organizational commitment and product/service advocacy. Also, don't try to measure too much on any one part of the scorecard. For instance, again with your employee opinions measures, an early baseline survey should be used to identify the key drivers of outcomes such as advocacy. The tracking part of the scorecard (what you measure month-on-month or year-on-year), should focus solely on these drivers (i.e. on what is likely to shift your business in the right direction).
The second important element in Measuring Performance Balanced Scorecard is making vital linkages between the data gathered. As the Sears model initially showed, and many unpublished studies have found since, linking the individual measures on the balanced scorecard together can provide a hugely powerful, diagnostic perspective on the performance of a business.
Sunday, July 02, 2006
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