Using metrics to align IT with corporate strategy is a good idea, but visually demonstrating to the business how IT is hitting its metrics goals is a fantastic idea. A balanced scorecard (BSC) approach is an effective way to manage goals, measure performance metrics, and achieve IT/business alignment.


What Is a Balanced Scorecard?

Perhaps the greatest challenge faced by IT management is showing how IT investment has been productive and profitable. All too often, business executives regard IT as a cost center into which large sums of money seem to disappear with no return. BSC is an effective and proven way to set IT objectives and to track success.
Developed in the 1990s by Harvard Business School researchers Dr. Robert Kaplan and David Norton, the BSC is a management system that suggests balancing goals and performance metrics across four organizational perspectives:


        Financial Perspective
        Traditional measures of profitability, revenue, and sales growth.


        Business Process Perspective
        Processes instituted to meet or exceed customer expectations.


        Customer Perspective
        Customer retention, customer satisfaction, and market research.


        Learning and Innovation Perspective
        How the organization and its people grow and change to meet new challenges.


These goals and their associated performance metrics can be embedded in a general framework or strategy. BSC is most often used by organizations to:
• Align business leaders around a single interpretation of the IT activities.

• Communicate the value of IT and how it intends to measure and manage performance.

• Communicate and accelerate IT strategy execution.

• Identify leading indicators of IT project success.

• Validate and test assumptions about what core capabilities drive IT performance.

• Structure a core set of strategic IT performance metrics.


Possible Drawbacks to BSC

A sound BSC hinges upon the ability of IT to collect and track metrics for performance. If the IT department does not have metrics ready to go, then the BSC will be sorely lacking in content, focus, and direction. Other criticisms of BSC state that some measurements don’t necessarily contribute to advancing strategic goals. The time and effort spent improving those areas are, therefore, a waste of time and resources.

This criticism gains weight during tough economic times when companies are focusing more on traditional financial measures such as return on investment (ROI) or internal rate of return (IRR). If the organization is losing money or market opportunities, then the main performance measure, as seen by business executives, will be profitability and positive ROI only.

Supporters of BSC point out that such a view – measuring past events instead of looking ahead – is narrow. The counterargument is that BSC management takes long-term strategic considerations into account in order to best position the organization for future opportunities. Difficult financial decisions (i.e. budget cuts) may still be necessary, but at least with BSC such cuts will be balanced against how they impact other operations.


Recommendations

1. Address the IT metrics program issue. Enterprises already using IT metrics for financial and operational performance stand the most to gain from using BSC. For those that aren’t using IT metrics, the research notes from McLean Report (listed below) address a number of areas where metrics can be applied. This collection is by no means exhaustive, but should provide IT with a simple knowledge base about metrics. All enterprises, however, should consult Info-Tech’s “Sample Balanced Scorecard” download.

o "Designing an IT Metrics Program"

o "Mastering Financial Techniques Is a Career Booster"

o "Measure the Impossible in the IT Department"

o "Security Metrics Prove IT’s Value"

o "Seven Key Metrics for Professional Services Success"

o "Like It Or Not, Data Center Energy Efficiency Metrics Are Coming"


2. Obtain buy-in by adhering to business strategy. If the CEO or CFO doesn’t understand and support a strategic framework for business/IT alignment, then they may not value the outcome measures devised for the BSC. Do not measure things that executive management doesn’t value. Instead, always focus on corporate strategy. Remember that although BSC is a management system enabling IT to translate a strategic vision into a practical and measurable action, it is also used to demonstrate operational performance at the tactical level.

3. Do not treat BSC lightly: the future of the IT function could depend on it. Be warned that BSC is a comprehensive solution that requires participation from top to bottom. It begins with building a consensus on strategic vision, setting goals, and communicating performance, and then deciding the best indicators for tracking progress toward those goals. Consult the following checklist to decide if IT is ready to tackle a BSC:

o Do IT initiatives and metrics tie into business strategy? If initiatives and metrics don’t link to strategy, IT runs the risk of expending resources on activities that won’t contribute to success.

o Does the IT compensation program link to corporate strategy? Metrics motivate, but if there are no rewards for improvement, there is no motivation to pursue those activities.

o Does IT have a real purpose for implementing a BSC?

o Does IT have a plan for internally communicating the importance of BSC?

o Is IT revisiting metrics to confirm their continued relevance?


4. Ensure that the BSC narrative flows well. A well-designed BSC should tell the story of how the IT strategy will map directly to business strategy. To create a complete and accurate picture of the enterprise’s IT strategy, consider:

o Cause and effect relationships. Every metric should be part of a chain of cause and effect relationships representing the strategy.

o Performance drivers. A good BSC should have a mix of lag indicators (traditional measures like market share and customer retention) and lead indicators (performance drivers that tell what is different about the strategy).

o Linking to financials. It is easy to become preoccupied with goals such as quality, customer satisfaction, and innovation. These goals must be translated into metrics that are ultimately linked to financial indicators.


Bottom Line

Aligning IT strategy with the business’s strategy needs to be more than just talk. A balanced scorecard approach can help turn IT/business alignment from a theoretical model into a routine way of running the business.