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The One Year, Thirty Minute Challenge :: Week Ten :: Metrics :: Balanced Scorecard

It happens every time you check in at the doctor’s office. They take your temperature, pulse rate, respiration rate and blood pressure. Why? There are thousands of medical measurements that assess a variety of health factors, so why those four? With decades, even centuries, of experience, medical professionals have deduced that these four measurements are indicative of baseline health. In fact, they’re called “vital signs”. That is, if each of these isn’t within an acceptable range, the patient’s life might be in jeopardy.

In this week’s One Year, Thirty Minute Challenge, we want to talk about the business version of vital signs. They’re a bit more complicated than medical vital signs because they’re most likely different from business to business, but they’re no less important.

My tool of choice for business vital signs is a Balanced Scorecard. A Balanced Scorecard is typically 6 – 12 metrics that span four categories – Financial, Operational, Learning & Growth and Customers. Once the metrics are identified, they’re collected regularly (monthly, weekly, daily or even hourly), compiled and reported to everyone in the organization. Everyone then knows if the organization is “winning” and when it’s not, knows that the efforts of everyone in the organization need to be trained on getting the flagging metrics back in line.

Let’s jump into this week’s exercise.

Sociologist William Bruce Cameron observed that, “not everything that counts can be counted and not everything that can be counted counts.” This catchy little quote sums up the most important task in this week’s exercise – identifying the right metrics. Tracking, measuring and reporting something that isn’t truly indicative of organizational health might do more harm than good because you’ll be constantly correcting something that doesn’t really push your organization closer to executing its mission or reaching its vision.

Gather your most trusted team members and start working through the four categories, one at a time – Financial, Operational, Learning and Growth and Customers – and begin making a list of what you COULD measure. Within reason, make the list as long as you want.

One quick note on identifying metrics that are more squishy. Some hard metrics will jump out at you immediately – top line revenue, ROIC, gross margin, number of defects per thousand widgets produced – but, at this point, you might not be measuring things like employee engagement, employee learning or customer satisfaction. That’s OK. Don’t worry about the how. You just want to identify the things that are truly indicative of organizational health.

Now, with your four category lists in hand, work through each list, one item at a time, asking –

  • If we fail at this, do we go out of business?
  • If we succeed at this, does it build sustained competitive advantage?
  • Is this integral to us executing our mission?
  • Is this integral to us reaching our vision?
  • Does this have an added benefit of making the organization itself stronger?

You can even make a form –

Metric If we fail at this, do we go out of business? If we succeed at this, does it build sustained competitive advantage? Is this integral to executing our mission? Is this integral to us reaching our vision? Does this have the added benefit of making the organization itself stronger?
Metric 1 X X
Metric 2 X X X X X

 

After this initial culling, each category list should be quite a bit shorter. Now, for each list, rank the items from most important to least important. With the ranked list, if the list has more than 3 items, can you remove item 4 or any items below it and not touch any item that was tagged “If we fail at this, do we go out of business”? Incidentally, if you have a “go out of business” item ranked 4 or below, you might want to reassess your list.

At this point, you want to have no more than three items in each category (if you have four on one of your lists, it’s not a terrible problem, but four in each category would get you to 16 – that’s too many).

If you need to do a bit more culling to get the total of all four lists to 6 to 12, have at it. Weigh all list items against the others and remove the ones that don’t make the cut. The shorter the list, the better. If you can reliably measure organizational health with 5 total items, go for it. That’s less to track and less for your team to focus on to see if they are “winning”.

The next couple of steps are mechanical. How will you collect the data and how will you disseminate it? Some of the scoring will most likely come off the P&L or a production report. Earlier in the exercise, I asked you to only identify metrics that you wanted to track and not worry about whether or not you had a methodology for collecting it. That’s because the item might have not made the cut. However, if it’s on the final list, you need to create the methodology for scoring the metric. How will you measure employee engagement – turnover? online survey of all employees? exit interviews? productivity? That’s a quick example. Each metric measurement that doesn’t exist will require its own meaningful methodology.

You can use a variety of methodologies for disseminating the results. You can send company wide emails, use a company-wide communication tool like Slack, put up dashboards on TVs scattered through the office, warehouse or factory, convene a Friday afternoon meeting and present the scores – the options are only bound by your creativity. Early on, there’s a big education responsibility. As the Balanced Scorecard is rolled out, everyone in the organization needs to understand why each item made the cut, why it’s vital to the business, how it’s scored and what activities move the needle.

Finally, we reach the second most important part of this challenge. If selecting the metrics is the most important part, doing something about them is a close second. Most of you are probably familiar with the term “diving for the ball”. In football or basketball, if an offensive player fumbles the ball (football) or loses the ball on a dribble (basketball), everyone on the team “dives for the ball”. At that point, it doesn’t matter how the ball got loose. The only thing that’s important is getting it back. That’s very similar to what should happen with the Balanced Scorecard. There most likely will be more time for analysis than what is available in the middle of a game, but when any of the newly reported results are flagging, it’s time for everyone on the team to step up, even if it’s not strictly their job. If one of your metrics is sales and sales are down, everyone in the organization should ask, “What can I do to increase sales?” Working outside your discipline can often yield incredible ideas that are new to the organization. It kills ego in the organization, because team members in the struggling discipline get help from those who are not “experts” in that field. It increases focus, teamwork and cross-discipline understanding.

When the next set of numbers are posted, team members can celebrate shared victories together or reconvene for additional focus on still-flagging numbers.

An apology is in order. This will clearly take more than 30 minutes, but the results will be worth it.

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