7 Comprehensive Scorecard

Introduction

How do we know if the strategies and systems are creating value for multiple stakeholders? All too often, we find out too late that the strategy isn't working or the systems aren't performing. By the time the customer opens a defective product, it is too late.

While you might be able to delight the customer with your organization’s ability to respond and fix the problem, it is doubtful you have the processes to do that well if you can’t get it right in the first place. Also, fixing problems after delivery costs much more than preventing them. In some cases, the fix wipes out all of the profit and more.

Even more importantly, we need feedback as early as possible on how strategies are working so we can make adjustments. We need feedback as early in the process as possible, and we also need a deep understanding of how the system works so we can understand what early measures mean for downstream performance. A comprehensive scorecard goes beyond a simple bottom line to a deeper understanding of the organization as a system.

Read Chapter 7, Comprehensive Scorecard, in the [Re]Create Book.

Objective – Understand the Comprehensive Scorecard concepts, components, and relationships and how they contribute to leadership and organization [re]design for sustainable excellence.

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How do you know how well your organization is performing? In this lesson, you will apply the key comprehensive scorecard concepts to your organization. Specifically, identify the key performance measures in each of the seven scorecard areas and identify and diagram the relationships between the performance measures. Then, evaluate the current measures using the selection criteria and process. Finally, evaluate the current measurement data, including levels, trends, and comparisons.

Comprehensive Scorecard 

Video 0:51

Objective – Identify the key performance measures in each of the comprehensive scorecard areas.

1. Customer Measures

Identify the customer and market measures (perceptions and behavior). Examples include Survey Results, First-Time Sales, Repeat Sales, and Referral Sales.

2a. Product/Service Measures

Working backward, identify the product and service quality and performance measures that predict customer perceptions and behavior. In other words, if you do these well, customers return, buy more, and bring their friends. Examples might include the product offering menu, product and service quality, fresh ingredients, friendly service, clean facilities, and timeliness.

2b. Production Measures

Next, identify the operations measures that predict product and service quality and performance. What are the in-process and intermediate product and service measures that, if you do those well, will result in products and services that meet or exceed the customers’ requirements? Examples might include production in-process metrics such as timeliness and quality.

3. Supplier/Partner Measures

Identify the supplier measures that predict operations and product measures. There is an old saying, “garbage in, garbage out.” Supplier and partner metrics are what suppliers and partners need to do well for your organization to do well. Examples might include supplier quality, reliability, and timeliness.

4. Workforce Measures

Identify the workforce measures that support the operations, products, services, and customers – for example, engagement survey, # of qualified vs. requirements, employee satisfaction survey, and % turnover.

5. Knowledge and Information Measures

Identify the knowledge management and information systems measures that predict internal customer satisfaction with the systems. Examples might include % information system uptime, user-friendliness score on the survey, number of best practices, and lessons learned in the knowledge management database.

6. Leadership and Strategy Measures

Identify the leadership, financial, strategy development, and strategy deployment measures. Examples might include operating and capital expenses, cash on hand, gross sales revenue, market share, and net income.

7. Governance Measures

Identify the governance metrics not already identified in other sections. Governance measures include the natural environment (energy sources, usage, and waste) and social responsibility measures. Examples might include recycling revenue per year, GHG/CO2 emissions, # audit findings, # ethics violations, and so on.

Comprehensive Scorecard System 

Video 5:58

Objective – Identify and diagram the relationships among performance measures.

Using the metrics you just identified in the Comprehensive Scorecard – Framework 7-3, spread them out using the editable worksheet provided, and organize them with the shortest arrows and closest connections. Then identify the relationships between the metrics and use arrows to depict the relationships. Use one-way arrows only to ensure clarity regarding the direction of the relationship. If there is a two-way relationship, then use two arrows with separate labels.

You might begin with the financials at the top of the example. Net income results from two other financial measures: gross sales minus operating and capital expenses, which determine cash flow. Then connect the different types of sales to gross sales. In this case, three types of sales combine to determine gross sales, including first-time sales, repeat sales, and referral sales. Then connect the measures that drive sales, which in this case is an index labeled “perceived customer value.” 

In this example, perceived customer value is made up of four measures: product and service offering menu, product quality, service quality, and complaints. Each of these is influenced by other operations measures. For example, the product offerings menu is affected by the number of new and enhanced products, which is influenced by research and development. Operations measures and the quality of supplier inputs influence product quality. Service quality is influenced by workforce capability and improvements to service processes. Workforce capability is influenced by workforce turnover, which is influenced by employee satisfaction. Cash available for reinvestment affects research and development, process improvements, and the workforce.

Performance Measure Selection 

Video 9:36

Objective – Evaluate the current measures using the selection criteria and process.

As you identify each candidate measure, use the following selection criteria to determine whether to include or exclude it from your scorecard. For each proposed measure, ask the following five questions in order.

1. Is this measure a stakeholder or regulatory requirement? In other words, do we have to measure and report this regardless of whether we find it useful?

If “YES,” then add it to the scorecard. If “NO,” then see #2

2. Is the measure actionable? If we did measure it, could we take action on the results? Is it an indirect measure of something actionable? Does it validate other measures that are actionable? For example, customer satisfaction is often a lagging measure that occurs after we deliver our product or service. However, we can probably influence the things that determine customer satisfaction, such as on-time delivery. So customer satisfaction is indirectly actionable. The trick is to measure what is useful vs. what is easy to measure.

If the answer is “NO,” then drop it. If “YES,” then see #3, 4, 5.

If the answer to ANY ONE of the following is “YES,” then add the measure to the scorecard. If the answer to ALL three is “NO,” then drop it.

3.  Systems – Will it help us manage or improve a system in the organization?
4.  Strategy – Will it help us develop or deploy the strategy?
5.  Stakeholders – Will it help us understand or validate the value created for a stakeholder?

The main goal of the criteria is to eliminate those measures that will not provide value for the effort. Using the stakeholders, strategy, and systems as guides, along with the selection process and criteria, identify the measures that you need to manage and improve organizational performance.

Complete your own measurement worksheet and run each measure through the flowchart.

Measurement Data Assessment 

Video 13:45

Objective – Evaluate the current measurement data available – levels, trends, and comparisons.

1. Identify Performance Measures

First, identify the performance measures and list them in the left-hand column. These can be copied from the previous worksheet – Measure Selection and Assessment (7-6).

2. Current Level of Performance

Do we currently have data for this measure? In other words, are we measuring it now, and do we know how well it is performing today?

3. Trend Data

Do we have trend data for this measure? How long? In this one, you might choose to use the number of years or months.

4. Comparisons

Do we have comparisons for this measure? Be careful who you compare your organization against. Organizations often choose comparisons based on the industry “average.” While better than average is a good start, it is far from excellent performance. Compare yourself to the best to see what is possible, learn from the best, and creatively adapt those lessons to your organization.

Comparisons are not always easy to come by. In some cases, you will need a third party to help you get comparison data. In some industries, third parties measure an industry group and then provide each participating organization with information on how it compares. To maintain confidentiality, they mask or code the organizations, so you know which one you are, but you only have code letters for the other companies.

5. Comments

Document any explanatory comments.

Examples

Customer Satisfaction – Yes, we have a level. Yes, we have trends. Yes, we have comparisons.

% Repeat Sales – In this case, there are no comparisons for sales. That may not be unusual depending on your industry and how many publicly traded companies there are.

% Damaged Packages – In this case, you do track the % of damaged packages. Still, you are not trending the results over time, so you can't track the effectiveness of process improvement efforts to prevent package damage. This is an opportunity to keep the data you measure over time to capture trends.

% On-time Delivery – In this case, you do not have data for on-time delivery performance, which in this example is an important predictor of customer satisfaction. This is an area for improvement.

% Packages Lost – In this case, you have the immediate data but no trends or comparisons. You don’t know whether you are getting better or worse and how you compare.

%Workforce Turnover – Levels and trends but no comparisons.

Workforce Satisfaction – Levels and trends again, no comparisons.

Revenue (sales) – In the example, you have levels, trends, and comparisons for revenue. This is not uncommon, as most commercial businesses have, at a minimum, revenue levels and trends.

# Ethics Violations – Ethics violations are not tracked.

Conclusion

Measurement by itself is a parasite. It consumes valuable organizational resources and thus should provide more value than it consumes. Consequently, measures should help leaders run the organization or improve the organization, or they are not worth the cost of measuring. So how do you come up with the candidate measures? There are three primary sources of measures: stakeholder feedback, system performance, and strategy progress. In this lab, we addressed the system measures in sequence, but it is often an iterative process, and proposed measures can emerge from any source at any time. Eventually, the comprehensive scorecard includes measures of all three perspectives or cornerstones: stakeholders, strategy, and systems. The organization aggregates these measures and delivers them for analysis and review during regular performance reviews.