Frank Buytendijk Blog

Did you ever wonder where the balanced scorecard came from? It was created as part of a set of workshops by Drs. Kaplan and Norton with a group of companies who were looking for a way to combine financial and non-financial management information. The idea that emerged and that was finetuned over time was to group and connect four areas of performance: financial, customer, process and growth/learning.

I wasn’t in the room during those workshops that led to defining the four perspectives, but I have a hypothesis how it could have happened. In figuring out which non-financial areas to pick, someone may have mentioned the three value disciplines from Treacy and Wiersema: operational excellence, product innovation and customer intimacy. Treacy and Wiersema state that organizations need to score sufficient in all these areas, and need to excel at one.

These three value disciplines map 3 of the balanced scorecard perspectives perfectly: process, growth/learning (innovation) and customer. The fourth perspective had to be the financial outcome of those perspectives.

If it didn’t happen this way, at least it shows the logic of the four perspectives, as they align with other established management theory.

PS. Please take the survey that is part of the research for my new book on www.frankbuytendijk.com.

In my years at Gartner, I worked together with Howard Dresner, who was my mentor, and who I also consider a very good friend. We also worked together at Hyperion. Howard is widely recognized as the ‘father of business intelligence’, the person who put BI on the map.

A few weeks ago, I had the pleasure of meeting Howard in London again, and it wasn’t all friendly chit-chat, I also did a hard-hitting interview with him. As he is the father of BI, he also has a few things to explain! As I wrote in an earlier blog, you could argue BI partly caused the credit crunch. Analytics on risk portfolios that weren’t understood, performance measures linked to extreme bonuses that caused irresponsible behaviors and too much focus on compliance reporting as the business case. I wondered what Howard had to say for himself ;-). Furthermore, I was curious if Howard felt if all his predictions had come true!

If you want to watch the interview, go to www.epmtv.eu!

I wrote about this many times. You could reason that the current economic crisis was actually caused by performance management. I realize that this is a provocative statement - but think about it. Many commentators highlighted the fact that bankers were given large bonuses based on the revenue they brought in by taking big risks. Linking incentives to targets is a performance management ‘best practice’. These same commentators pointed out that financial institutions often didn’t really understand the risk profile of the subprime mortgage packages that they bought, reshuffled into different packages, and sold. The risk calculations were based on very complex and advanced analytics; which are also part of performance management. Lastly, many organizations felt safe because they were ‘compliant with regulations’ and did all the necessary reporting. Obviously, ‘accountability’ (a large driver of performance management) was not enough. Hence, my harsh statement that performance management caused the current crisis.

So what’s the good news? I think performance management will play a leading role in weathering and solving the crisis too. The economy, despite all the mathematics, in the end is a social science and is influenced by human behavior. What was damaged the most in the beginning of the recession was ‘trust’. Financial institutions trusted the mathematical models too much. When the economy collapsed, the banks didn’t trust each other anymore. This impacted consumer confidence and trust, and the financial crisis impacted the real economy.

Rebuilding trust is the key to ending the recession. Consumers must regain trust to buy houses and cars again, which will fuel the real economy and restore the financial system. The path to trust is transparency; which is exactly what organizations should invest in.

Claire Carradice shares valuable trust lessons from Siemens. Mike Malwitz describes the role of XBRL. John O’Rourke will discuss IFRS. Thomas Oestreich looks at reputation risk, as part of risk management, and Angela Enyeart discusses how to ensure sustainability within your operations. Toby Hatch and Mike Haley discuss an interesting concept called ‘collaborative scorecarding’. Mark Conway will – as always – provide some interesting links to enable you to further dive into the subject. In my opening article, I will explore the concept of trust itself.

Download the Journal of Management Excellence here.

frank

PS. Previous issues of the Journal can be downloaded at http://www.oracle.com/solutions/business_intelligence/resource-library-whitepapers.html