Should I use KPI databases to build my Balanced Scorecard?
This is a reflection of differences in their long-term goals and in the specific issues they face, despite being in the same industry.
In 100 Words
Yes – but doing so is usually less helpful than it might appear at first. The value of the Balanced Scorecard lies in its ability to help you use information about your organisation’s performance in pursuit of your key strategic goals. Using measures only from other organisations is not, therefore, a good substitute for working out what information is actually needed for your own organisation – in fact, it is potentially harmful. Operationally some standard KPIs are valid but this does not remove the need for careful consideration of targets for each of these that relate to your own specific situation.
So when is it OK?
It depends mostly on how the Balanced Scorecard will be used – whether it is for Strategic or for Operational Control purposes. For more information on how these applications differ see the 2GC FAQ – What are the main benefits of a Balanced Scorecard? Broadly, the scope to use others’ measures is greater in Operational applications. This is particularly true in larger organisations where some departments, functions or processes may be very similar to those elsewhere, and hence share similar operational performance goals. This is the premise upon which most ‘Benchmarking’ activity is based.
‘Strategic’ Balanced Scorecards also present plenty of scope for different designs to share common measures, for example most include some customer/citizen satisfaction and financial measures, but these similarities, should not occur by design. In order to ensure relevance, measures must be selected based on how well they are likely to help monitor achievement of the specific strategic objectives your organisation has agreed to pursue; not what others have chosen to monitor.
Measures/KPIs for Operational Balanced Scorecards
You need to identify a set of performance measures that provide the most relevant information so that the best decisions can be taken about any actions needed to correct/ improve it. This is usually based on a relevant strategic direction, for example whether the unit needs to focus on quality, speed or cost. One of our clients was a firm operating in a new and high-growth market with demand outstripping supply; they decided that they needed to focus operational management attention on overall supply-chain performance rather than product quality. However, when they investigated what similar firms were measuring, they found that most of their competitors were focused on product quality. Thus, using the standard industry measure would have been inappropriate, due to their own particular strategic context.
Designing Operational Balanced Scorecards often involves some kind of modelling of the processes involved, identifying the most relevant measures to monitor. In one extreme case, a firm built a dynamic simulation of one of their retail outlets to help identify the couple of dozen key measures that could highlight performance across all its stores. Where well documented standardised processes are used, best practice is often a given, and generic measures can be used, for example in buying, quality, HR or IT processes.
Measures/KPIs for Strategic Balanced Scorecards
Strategy implementation typically involves managing a high degree of uncertainty based on the management team’s theories about what produces the desired results i.e. do we focus on quality, speed or cost? There are no ‘right’ answers to these questions and no pre-defined best practice. Identifying the correct measures for a Strategic Balanced Scorecard therefore requires the top management team of an organisation or unit first to agree on what they are trying to achieve and how best to achieve it.
The modern 3rd Generation Balanced Scorecard approach facilitates clarification of this by helping the management team to:
- Agree upon the long term goals of the organisation or unit;
- Make choices about the medium-term objectives to deliver the long-term goals - i.e. what has to be done first to make the changes happen?
- Create a focussed measurement system that enables them to track performance towards those strategic goals - i.e. are we doing what we set out to do and does it have the intended effect?
Once the management team has established the company’s strategic goals and how they believe they can achieve them, the choice of how to monitor the progress with appropriate measures, becomes a lot clearer. For more information look at the 2GC FAQ - How do I create a Strategic Balanced Scorecard?
Where can I find a Measures/KPI Database?
If you do wish to use such databases then these websites have some performance measurement /KPI suggestions and links: