Improving IT Performance Using the Balanced Scorecard

by Harry Chapman

June 2006

Challenges to IT organizations have never been greater. Now, more than ever, IT organizations are the key to the long term success (or even survival) of their companies.

Challenges to IT organizations have never been greater. Now, more than ever, IT organizations are the key to the long term success (or even survival) of their companies. Reduced budgets and increasingly complex technologies are less pressing than the critical need for IT to be a strong business partner and implement strategy effectively. A Fortune magazine article concluded that the most common reason executives fail is their inability to execute strategy. Those IT organizations that can transform themselves to address the new realities of business can thrive. Those who do not will be facing even more competition from outsourcing and end-user self-sufficiency.
While the old IT role is largely obsolete, there is a new, more significant and valued role for IT – implementing company strategy. This new role requires IT organizations to transform themselves by developing some new competencies. One highly effective, proven and powerful tool for implementing strategy is the Balanced Scorecard. In the seventy-fifth edition of the Harvard Business Review (HBR), the Balanced Scorecard was rated as one of ten most important business ideas developed in HBR’s first seventy-five years.
As an IT executive, is it time for you organization to apply an approach that has proven itself over and over again into an IT setting? This article provides an overview on how to apply the principles used so successfully by business to IT enabling similar results.
The IT Balanced Scorecard enables IT organizations to:

• Align their activities with the business strategy
• Identify the key strategic initiatives that are fundamental to delivering the business’s strategy
• Establishment of measures to objectively assess performance
• Determine targets of performance to demonstrate achievement as well as provide performance incentives for the IT staff.

IT Balanced Scorecard Approach

The IT Balanced Scorecard approach starts with establishing the proper management framework and project governance. It is essential that the businesses supported by IT are engaged in the process and that IT executive management drives the overall process. Once the management framework is established, the approach is to:

• Clear Strategy: Clearly understand the business’s strategy in terms that IT can best understand. Involvement by the business representatives assists IT understand the strategy and provides a solid foundation for moving forward. IT needs to fully understand the strategy before moving forward.
• Strategy Map: Next, develop a strategy map or “driver model.” This enables the IT organization to articulate how the overall strategic objectives will be delivered in terms of their value to their customers (the businesses), the internal processes needed to deliver that value and the skills and resources needed to support those internal processes. The strategy map enables IT to focus the conversation around strategy and impact, rather than just whether IT can or can't do something
• Measures: Once the strategy map is completed, the IT organization establishes objective measures for measuring its progress.
• Targets: Once IT has determined the limited set of measures, the next step is to establish targets. The targets drive performance and enable the IT organization to objectively demonstrate how well it is achieving its goals.
• Initiatives: In order to achieve the targets, what are the initiatives needed? The framework developed so far enables IT to identify the initiatives needed to achieve the targets. Initiatives are also owned by parts of the IT organization which enables the IT staff have a clear and unmistakable linkage to the business strategy.
• Management Process: Finally, transform the IT Balanced Scorecard into a management process for periodic performance reviews. The business partners continue to be involved in the ongoing process.

The net result is a new way of operating IT with involvement of the business and clear linkages between IT and the businesses that IT supports.

IT Balanced Scorecard Benefits

There is a reason that approximately 70% of the Fortune 500 companies have implemented a Balanced Scorecard – it is a powerful tool for translating strategy into action. As companies depend more and more on Information Technology in achieving their strategy, management needs a proven, effective tool to implement the strategy – The IT Balanced Scorecard is that tool.