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

2. Contents A GENERIC IT BALANCED SCORECARD
BUILDING AN IT BALANCED SCORECARD

5. 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

6. 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

7. 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

8. 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

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

10. 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?

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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)

20. 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

21. 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)

22. 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

23. 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