There may
be no substitute for profits, but companies have begun to measure
success in other, less traditional ways.
To do so, they are turning to information technology to develop
tools that can find the answers to a wide range of tough questions
about their businesses: Are customers getting timely deliveries? Are
employees satisfied? Do suppliers feel they're treated fairly?
This shift represents a sea change in business thinking,
according to Kamal Haddad, a professor of finance at San Diego State
University and a researcher on the Balanced Scorecard concept, which
combines both traditional and nontraditional metrics of business
success.
"In the past, companies focused only on financial measures, such
as return on investment. They were backward-looking measures, but
they served their purpose," Haddad says. "But with the arrival of
business process re-engineering, things changed and firms needed to
focus on driving future performance. The old business measures don't
serve that purpose, but the Balanced Scorecard does."
The Bottom Line
In fact, say some management consultants, the Balanced Scorecard
can play a big role in a firm's bottom line.
William Schiemann, chairman and CEO of management consulting firm
Metrus Group Inc. in Somerville, N.J., and co-author of Bullseye!
Hitting Your Strategic Targets Through High-Impact Measurement, says
companies that use Balanced Scorecard business metrics have a better
return on investment than those that rely only on the traditional
financial measurements of a company's health.
What's more, he says, firms using the Balanced Scorecard have
greater success in managing organizational changes such as
restructuring, mergers and acquisitions, and business process
re-engineering.
"The quality and accuracy of these (nontraditional) things can be
measured," Schiemann says. "For instance, there are very good
techniques today to measure how much a change in employee
satisfaction affects changes in customer loyalty and what impact
that has on the company's bottom line."
For example, at a bank, where there's typically a lot of
employee-customer interaction, a 10% downturn in employee
satisfaction might result in a 3% to 4% loss of customers, Schiemann
says. The loss of that many customers could subtract about 1% from
the bank's net earnings, he says.
Sometimes nontraditional measurements uncover hidden business
problems that are based on what people believe, not necessarily on
what is true, Schiemann says.
"Say your product has a defect one out of 10 times," he explains.
"If your customers think it's four out of 10, that's what drives
their behavior."
Haddad says another useful metric is "citizenship," in which a
company tries to measure its contributions to the community. It
counts the number of employees involved in social programs and the
dollar contributions the firm makes to those programs.
The Big Picture
One big IT shop that believes in the Balanced Scorecard model is
Nabisco International Inc. in East Hanover, N.J.
In Nabisco's IT department, Donna Dietz, vice president in charge
of enterprise relationship management, uses a Balanced Scorecard
that measures IT's success in areas such as supply-chain management,
marketing systems, help desk, development projects, data center
operations, data networking and remote connectivity. The company is
also developing a measurement for salary competitiveness.
"By measuring the things we do, we think we can understand
exactly what is happening in the various functional areas of IT,"
Dietz says.
"For example, in our marketing systems, we measure things like
systems usage - how often are systems available to users, how many
help desk tickets are there on these systems?" she explains. "Then
we discuss that with the people in the business who are our users
and ask them if that is acceptable. Then we set goals in partnership
with the business customers.
"This information also will enable us to benchmark ourselves
against other companies and IT departments," Dietz says. "We want to
see how we compare to other food companies, other large corporations
and the best-in-class companies."
While other firms might not willingly share their benchmarking
information, consultants can provide that data, she says.
The fact that Nabisco has a long history of measuring its
performance against that of competitors bolsters its IT effort. It
gathers grocery store sales data about its own and competing
products, stores the data in dedicated data warehouses and lets
businesspeople use online analytical processing tools to view it.
Nabisco's IT staff is considering using some third-party software to
help gather information for its business metrics but hasn't made any
final decisions.
Getting Results
How quickly can companies expect bottom-line results from the
Balanced Scorecard?
The effort at Nabisco, now 6 months old, is too new to have
produced results, Dietz says.
Schiemann says initial positive results can show up in as little
as six months, while dramatic improvements take a full year. If
there's been no change in three years, either the company has been
taking the wrong measures or hasn't gotten all its employees to buy
in to the process, he says.
How can you tell if you have buy-in from employees? Ask them,
Schiemann says. "If you can ask a person on the shop floor or a
person programming code, and they can tell you three to four of
their objectives, how those tie in to the company's performance and
what the measures of achieving those objectives are, you've got it."
Alexander is a freelance writer in Minneapolis. Contact him at
sorion99@yahoo.com.
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