Measuring and Improving Corporate IT Performance through the Balanced Scorecard (Part 1)

Contents A GENERIC IT BALANCED SCORECARD BUILDING AN IT BALANCED SCORECARD

The Balanced Scorecard Kaplan and Norton developed the balanced scorecard in the early 90's their idea: traditional financial measures should be supplemented with measures concerning customer satisfaction, internal processes, and the ability to innovate these additional measures should assure future financial results and drive the organization towards its strategic goals while keeping all four perspectives in balance they propose a three layered structure for the four perspectives: - mission: "to become our customers' most preferred supplier" - objectives: "to provide our customers with new products" - measures: "percentage of turnover generated by new products" their BSC can be translated into the more specific needs of an IT function

The Balanced Scorecard How do we look to shareholders ? Financial Perspective Objectives Measures How do customers see us ? What must we excel at ? Internal Business Process Perspective Customer Perspective Objectives Measures Objectives Measures Learning and Growth Perspective Objectives Measures Can we continue to improve and create value ? Source: Robert S. Kaplan and David P. Norton, 1994

The Balanced Scorecard Customer Perspective How do the customers view the company? Mission To deliver the best added value to the customer Objectives new products partnership with customer Measures % of new products of turnover joint development efforts Financial Perspective How do the shareholders view the company? Mission Assure added value for shareholders both in the short and long term Objectives survive prosper Measures ROI and cash flow market share

The Balanced Scorecard Internal Business Process Perspective How can the company improve its internal operations to improve the service to the customers? Mission Efficiently produce and deliver products and services Objectives excellence in production excellence in deliveries Measures cost price per unit average throughput time for orders Learning and Growth Perspective What should the company do to remain successful in the future? Mission Innovate, improve and learn to the maximum Objectives technological leadership product focus Measures time necessary to develop a new generation of products number of old products to number of new products

A generic IT Balanced Scorecard Corporate Contribution User Orientation Operational Excellence Future Orientation

A generic IT Balanced Scorecard User Orientation Corporate Contribution How do the users view the IT department? How does management view the IT department? Operational Excellence Future Orientation How effective and efficient are the IT processes? Is IT positioned to meet future challenges?

A generic IT Balanced Scorecard User Orientation How do the users view the IT department? Mission To be the preferred supplier of IS and to exploit business opportunities maximally through IT Objectives preferred supplier partnership with users user satisfaction Corporate Contribution How does management view the IT department? Mission To obtain a reasonable business contribution of investments in IT Objectives control of IT expenses business value of new IT projects business value of the IT function

A generic IT Balanced Scorecard Operational Excellence How effective are the IT processes? Mission Efficiently deliver IT products and IT services Objectives efficient software development efficient computer operations efficient help desk function Future Orientation Is IT positioned to meet future challenges Mission Develop opportunities to answer future challenges Objectives permanent training and education of IT personnel expertise of IT personnel research into emerging information technology age of application portfolio

A generic IT Balanced Scorecard Measures for Corporate Contribution Control of IT Expenses percentage over or under IT budget allocation to different budget items IT budget as a percentage of turnover IT expenses per staff member Business Value of new IT Projects financial evaluation based on ROI, NPV, IRR, PB business evaluation based on Information Economics Business Value of the IT function percentage of the development capacity engaged in strategic projects relationship between new developments/infrastructure investments/replacement investments

A generic IT Balanced Scorecard Measures for User Orientation Preferred IT Supplier percentage of applications managed by IT percentage of applications delivered by IT Partnership with users index of user involvement in generating strat. applications index of user involvement in developing new applications User Satisfaction index of user friendliness of applications index of user satisfaction

A generic IT Balanced Scorecard Measures for Operational Excellence Efficient Software Development number of lines of code per person per month average days late in delivering software average unexpected budget increase percentage of projects performed within SLA percentage of maintenance activities Efficient Computer Operations percentage unavailability of mainframe and network response times per category of users percentage of jobs done within time Efficient Help Desk Function average answer time of help desk percentage of questions answered within time

A generic IT Balanced Scorecard Measures for Future Orientation Permanent Education of IT Personnel number of educational days per person educational budget as percentage of total IT budget Expertise of IT Personnel number of years of IT experience per staff member age pyramid of IT staff Research into emerging Technologies percentage of IT budget spent on research Age of the Applications Portfolio number of applications per age category

Building an IT Balanced Scorecard Project phases: 1. presentation of the concept to senior and IT management 2. establishing a project team 3. data-gathering phase where information is collected on: - corporate and IT strategy - IT metrics already in use for performance measurement 4. developing the organization-specific IT balanced scorecard

Building an IT Balanced Scorecard Developing principles: start with a "standardized" model as presented apply the Kaplan and Norton principles l build in cause-and-effect relationships l include sufficient performance drivers l linkage to financial measures implement the IT balanced scorecard as a Strategic Management System l clarify and translate vision and strategy l link strategy to team and individual goals l link strategy to resource allocation l organize strategic feedback

Building an IT Balanced Scorecard Cause-and-Effect Relationships IF we increase IT employee's motivation (future orientation) THEN this will result in better quality of the developed applications (operational excellence) this will meet better user expectations (user orientation) will enhance the support of business processes (business contribution)

Building an IT Balanced Scorecard Outcome Measures and Performance Drivers Outcome measures Performance drives lines of code per person number of educational days index of user satisfaction response time of help desk

Building an IT Balanced Scorecard Financial Outcomes "A failure to convert improved operational performance into improved financial performance should send executives back to the drawing board to rethink the company's strategy or its implementation plans". (Kaplan and Norton)

Building an IT Balanced Scorecard Clarify and Translate Vision and Strategy align IT and corporate strategy clarify cause-and-effect relationships build in sufficient performance drivers in order to visualise how the IT strategy will be achieved build in sufficient outcome measures in order to monitor whether the strategy is successful link to financial objectives in order to visualise how IT strategy is improving the company's financial performance

Building an IT Balanced Scorecard Link Strategy to Resource Allocation stretch long term targets define long term targets that are realistic take strategic initiatives to achieve the stretch targets define short term milestones for the IT BSC link priority settings for IT investment projects to the IT BSC Link Strategy to Team and Individual Goals communicate the IT BSC to the employeees link individual objectives of IT employees to the IT BSC link incentive system to the IT BSC measures Organise Strategic Feedback act upon the measurement results