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By Dr. Arthur Langer
IT organizational transformation is a prime concern for CIOs these days, particularly as they battle through a recession. The Balanced Scorecard can provide a method to measure outcomes that are not always financial or tangible.
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By Dr. Arthur Langer
IT organizational transformation is a major issue for most IT executives today. Specifically the challenge is how to transform a very technical oriented organization into one that is extremely aligned with the business of the firm.
A useful management tool called the Balanced Scorecard is one way of designing your new organizational strategy and a way of keeping score. The Balanced Scorecard was introduced by Robert Kaplan and David Norton in the early 1990s as a tool to solve measurement problems. An organization's ability to develop and operationalize its intangible assets has become more and more a critical component for success.
The Balanced Scorecard can be used as a solution for measuring outcomes that are not always financial and tangible. Furthermore, the Balanced Scorecard is a "living" document that can be modified as certain objectives or measurements require change. This is a critical advantage because as we all know, technology projects often change in scope and in objectives as a result of internal and external factions.
The ultimate value then of the Balanced Scorecard in this context is to provide a means for evaluating transformation, not only for measuring completion against set targets, but also for defining how expected transformations map onto the strategic objectives of the organization. In effect it is the ability of the organization to execute its strategy. Before explaining the details of how a Balanced Scorecard can be applied specifically to IT, the figure below shows a generic Scorecard that presents the overall picture of how emerging departments need to transform their operations into concrete strategic benefit.
Source: Kaplan & Norton (2001)
The generic objectives of a Balanced Scorecard are designed to create a strategy-focused organization. Thus, all of the objectives and measurements should be derived from the organization's vision and strategy (Kaplan & Norton, 2001). These measurements are based on the fundamental principles of any strategically focused organization and on alignment and focus. Kaplan and Norton defined these principles as the core of the Balanced Scorecard:
1. Translate the Strategy to Operational Terms: this principle includes two major components that allow an organization to define its strategy from a cause-and-effect perspective using a strategy map and scorecard. Thus the strategy map and its corresponding Balanced Scorecard provide the basic measurement system.
2. Align the Organization to the Strategy: Kaplan and Norton defined this principle as favoring synergies among organizational departments that allow communities of practice to have a shared view and common understanding of their roles.
3. Make Strategy Everyone's Everyday Job: this principle supports the notion of a learning organization that requires everyone’s participation, from the CEO to clerical levels. To accomplish this mission the members of the organization must be aware of business strategy, individuals may need "personal" scorecards and a matching reward system for accomplishing the strategy.
4. Make Strategy a Continual Process: this process requires the linking of important yet fundamental components including organizational learning, budgeting, management reviews, and a process of adaptation. Much of this principle falls into the areas of learning organization theories that link learning and strategy in ongoing perpetual cycles.
5. Mobilize Change through Executive Leadership: this principle stresses the need for a strategy-focused organization that incorporates the involvement of senior management and can mobilize the organization and provide sponsorship to the overall process.
Using the core Balanced Scorecard schematic, I have modified it to operate with a typical IT organization as shown below:
1. Evaluation of Technology: the first step is to have an infrastructure that can determine how technology fits into a specific strategy. Once this is targeted, the evaluation team needs to define it in operational terms.
2. Align Technology with Business Strategy: once technology is evaluated, it must be integrated into the business strategy. This involves ascertaining whether the addition of technology will change the current business strategy.
3. Make Technology Projects Part of Communities of Practice: affected communities need to be strategically aware of the project. Organizational structures must determine how they distribute rewards and objectives across departments.
4. Phased-In Technology Implementation: short- and long-term project objectives are based on Driver (market driven) and Supporter (maintenance) life cycles. This will allow organizational transformation phases to be linked to implementation milestones.
5. Executive Interface: CEO and senior managers act as executive sponsors and project champions. Communities of practice and their common "threads" need to be defined, including middle management and operations personnel, so that top-down, middle-up-down, and bottom-up information flows can occur.
The Balanced Scorecard ultimately provides a framework to view strategy from four different measures:
1. Financial: ROI and risk continue to be important components of strategic evaluation.
2. Customer: this involves the strategic part of how to create value for the organization's customers.
3. Internal Business Processes: this relates to the business processes that provide both customer satisfaction and operational efficiency.
4. Learning and Growth: this encompasses the priorities and infrastructure to support organizational transformation through Responsive Organizational Dynamism.
The above generic Balanced Scorecard framework needs to be extended to address IT specific issues. I propose the following adjustments:
1. Financial: requires the inclusion of indirect benefits from technology, particularly as Lucas (1999) specified, in non-monetary methods of evaluating ROI. Risk must also be factored in based on specific issues for each technology project.
2. Customer: technology-based products are integrated with customer needs and provide direct customer package interfaces. Further, Web systems that use the Internet are very dependent on consumer use. As such, technology can modify organizational strategy because of its direct effect on the customer interface.
3. Internal Business Processes: technology requires business process reengineering (BPR), which is the process of re-evaluating existing internal norms and behaviors before designing a new system. This new evaluation process will addresses customers, operational efficiencies, and cost.
4. Learning and Growth: organizational learning techniques, under the umbrella of communities of practice and self-learning as discussed in my previous articles.
Next: Translating Strategy Into an IT Scorecard.