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FACT-BASED MANAGEMENT
ABM is not a prerequisite for designing and using a scorecard system.
Scorecards are much more about communicating strategies to employees and increasing alignment of execution of the work to stay focused on the strategies.
But the existence of ABM data can populate the scorecard framework with ro- bust and high-octane information. Furthermore, ABM becomes an essential tool to move from an annual budget to continuous rolling forecasts to allow for faster reactions to external events, revised strategic objectives, and changes in resource allocations.
76 STRATEGY MAPS AND BALANCED SCORECARDS
Focus on Outputs and Outcomes
With fact-based and relevant cost data, managers and teams can see things they had never seen before—and some of it might not be pretty. They really find out, for example, what the true cost is to process an individual customer return. They can differentiate profitable from unprofitable customers. They can isolate the location, amount, and cost of unused and available process- ing capacity.
It is important to treat activity-based management (ABM) data responsibly.
Often leaders in organizations are surprised when they see the truth about the consumption patterns from their cost structure. But, as with scorecards, find- ing someone to blame is not the point of having ABM data. The key is to use the ABM data as a guide for making better decisions, and use the data for per- formance measures as a valuable benefit.
Most organization leaders have very little insight about their internal outputs. I’m not referring to the obvious products and standard service lines that they deliver to end-customers and service recipients. Rather, most leaders lack a minimal understanding of the internal outputs of work, such as knowing what the work effort and cost are to generate any of the following:
A new enrolled account.
A processed invoice.
A returned and put-away product.
A completed engineering change.
A completed new customer sign-up.
A completed executive report.
A registered student.
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Whether the ABM data measure the work activity costs, the processes that the activities belong to, or the outputs, ABM makes scorecards easier to populate.
This is because ABM already has accurate numbers in place, and in a format de- signed for decision support. Some organizations have initially designed their scorecards without cost data. This leaves gaps or incorrect allocationsthat cor- rupt the result measurements. Adding ABM fills in the weak spots.
With the visibility created by ABM, organizations can identify where to re- move waste, low-value-adding costs, and unused capacity, as well as understand what drives their costs. With ABM, businesses can measure where they are and are not profitable, and also understand why.
Some perceive ABM as just another way to spin financial data rather than as useful, mission-critical managerial information. However, practitioners view ABM as essential for good decision making. Also, in the past, an ABM project was just that, a project, and not viewed as a repeatable and reliable reporting sys- tem. As a project, ABM helps fix the problem and then the project is done. In contrast, for those who recognize its value, maintaining and regularly reporting scorecards quickly becomes essential. By combining ABM with scorecarding, there is an imperative to maintain the ABM system because ABM becomes an important feeder system of data into the scorecarding system.
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Focus on Outputs and Outcomes (Continued) A sales call.
A setup or changeover of equipment.
These are not simply the work activitiesthat people perform but the de- scriptions of the results after the activities have been performed; they are the outputs of work. A collection of outputs leads to outcomes, a more macro re- sult for which cost can also be calculated. ABM does a great job of tracing re- source expenses to all sorts of outputs. This does not mean that the work processes that produce the outputs are unimportant. It simply means that many people react more to the visibility of output costs relative to the process costs, even though they are essentially the same costs, just reported differently.
In short, when unit costs are trended, employees and managers gain more insight. They can use benchmarks to deduce whether they might have a best or worst practice. Per-unit costs should not be included only in the scorecard’s financialperspective but should appear in the other perspectives as well. They may have a currency sign attached, but they are a representation of the equiv- alent resources consumed by the unit measure, stated in terms of money.
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78 STRATEGY MAPS AND BALANCED SCORECARDS
Reporting and Distributing Scorecard Information:
Internet-Based Architecture
One reason that performance measurement systems have failed in the past has been the inability to easily disseminate the published scorecard data to large masses, if not to all the managers and employees. Scorecard software systems resolve the mechanics of reporting and distributing the data in several ways:
Internet delivery via Web browser.The minimum threshold to truly sus- tain a scorecard system is to structure it as an Internet-based architecture that delivers the scorecard directly to each user’s desktop via their Web browser. The state-of-the-art interface design is achieved without requir- ing the user to install any software on their local computer. The zero foot- printdesign of scorecard systems allows the widest possible deployment of scorecard information with the least possible impact on the organiza- tion’s IT resources. The goal is to maximize the number of potential par- ticipants in the scorecard initiative and thus to have the best possible impact on the success of the organization’s strategy implementation.
Key performance indicator measure meters. Evaluating the perfor- mance of the many different types of measures that are included in a typical scorecard can result in a confusing collection of metrics that de- fies easy understanding. Scorecard software systems display perfor- mance measures as a meter gauge, like on an automobile dashboard that compares each KPI and its score across a range. The range is an- chored with a feasible high and desirable score and an under-performing undesirable score. The result is a scoring system that allows perfor- mance levels of vastly different measures to be compared on a common (sometimes called normalized) scoring scale.
Custom views to focus efforts.Scorecard Web interfaces allow users to create custom views of the scorecard in order to isolate the strategic ob- jectives that apply to a particular department, initiative, or individual.
By using this capability, managers can influence the behavior of em- ployees by isolating key metrics in custom views.
Quick recognition of performance levels.A key benefit of the develop- ment of a scorecard reporting system is the ability to leverage visual indi- cators, such as traffic lights and alert messages, to quickly recognize performance levels. Many nanosecondmanagers need fast access to per- formance information in order to quickly identify problem areas and take action. Dashboard views provide this quick evaluation of performance as well as the ability to drill down further to see the contributing factors.
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Reporting and Distributing Scorecard Information (Continued) There have been remarkable advances in data warehousing and data mining retrieval systems relative to only a few years ago. With these capabilities, every byte of information that flows through an enterprise can be managed and, where relevant for scorecards, put to use.
By definition, strategic PM requires sharing of information across multiple solutions—and raises this function to a broader level when integrated into a business performance intelligence way of thinking. Access to a data ware- house provides a level of cohesion, consistency, and communication that could not be achieved with traditional approaches that only offer limited sharing of information from application to application.
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