Your company has identified its business strategy and communicated its business goals to the organization, so you’re ready to start working towards them, right? Not quite. You still need a plan. It’s difficult to get from Point A (strategy and goals) to Point B (successful results) without a map of how you’re getting there. The road map of the business world is the scorecard, and it is the golden thread that connects business goals to measures of success.
Scorecards are important because they translate strategies and goals into tactics and actions – from the “what” to the “how.” And it’s difficult to track progress without a framework that defines success. That’s where a scorecard comes in. It illustrates the actions that will drive success, and it ensures alignment so that all team members are headed towards the same finish line.
How to Construct a Scorecard
It’s important to take the time to construct the scorecard properly. If you don’t, you won’t have a fabric that weaves everything together. Some clients think the more metrics the better, but that is not the case at all. In fact, the more succinct it is, the better a roadmap it provides. The best scorecards provide focus and priority – both across the organization and within all tiers of an organization.
The cross-functional view enables you to specify the interdependencies among departments. For example, if your goal is to increase sales by 10 percent, it will take more than just the Sales department to ensure success. The scorecard can specify requirements for new product rollout from R&D, for lead generation from Marketing, for pricing support from Finance, and for customer satisfaction from Service Delivery. Through the scorecard, you can paint a picture of how all departments must be synchronized to achieve a goal of increased sales. Without this coordinated view, each department is free to set its own measures of success and there is no golden thread to ensure the firm’s goals are met.
The multi-tier view enables all layers of the organization to understand how they can impact results, that is, what is within each tier’s specific control to influence. Using the same example of a goal to increase sales by 10%, a sales rep might have a metric for new sales contracts or customer up-sells per month, the manager will have a metric for team achievement, the district manager for regional or product performance, and the VP for overall sales results. Without a coordinated view up and down the organization, there is no golden thread to ensure the firm’s ultimate goals are met.
The scorecard should include four dimensions: finance, operations, customer and resources. Regardless of business goal, including all four components provides a holistic view of requirements for success – again, the golden thread. Here is a quick breakdown of each component:
- The Finance dimension defines financial goals focused on specific revenue, expense or profit metrics.
- The Operations dimension defines the operational metrics needed to support the financial goal. Again using the increased sales goal example, the operations metrics might specify the number of contracts to be sold, cycle time to close a contract, and cycle time to fulfill a sale.
- The Customer component could specify metrics for the number of new logos required, growth to the existing client base, and client satisfaction metrics.
- The Resource dimension tracks the metrics which define requirements for a successful organization; for example, skill levels and turnover. Although this metric is often disregarded by companies, these statistics are equally as important for measuring success as the other components.
It is much easier to drive business success with clear metrics. With a properly constructed scorecard in place, everyone in the organization is headed in the same direction. This coordinated roadmap for the journey enables measurable improvements in achieving business goals.
Read our case study on how Northridge applied the golden thread theory for measurable results.