Measuring and Improving Corporate IT Performance through the Balanced Scorecard (Part 2)

Contents IT BALANCED SCORECARD AND BUSINESS BALANCED SCORECARD IT BALANCED SCORECARD PRACTICE

IT Balanced Scorecard and Business Balanced Scorecard IT has to focus more on creating business value IT has to shift from the efficiency and cost cutting concern to a better support of today's and future business needs an IT balanced scorecard has to address IT operational and business strategic concerns operational: monitoring within the IT department (IT manager) strategic: IT's contribution to the business (CIO) Included IT-Based Capabilities in a Balanced Business Scorecard (Nolan Norton Institute) Strategic IT Balanced Scorecard (GartnerGroup)

IT Balanced Scorecard and Business Balanced Scorecard CEO CIO Department 1 Department 2 Systems Development Manager Business Balanced Scorecard Data Center Manager IT Balanced Scorecard

IT Balanced Scorecard and Business Balanced Scorecard (Nolan Norton) Relationship between IT and business scorecards BALANCED BUSINESS SCORECARD Business planning Senior management Business value of IT STRATEGIC IT BALANCED SCORECARD IT planning IT management (CIO) Effectiveness of IT OPERATIONAL IT BALANCED SCORECARD IT supply planning IT supply management Effectiveness and (IT manager) efficiency of IT supply

IT Balanced Scorecard and Business Balanced Scorecard (Nolan Norton) A bank included IT-based capabilities in it's balanced business scorecard Net income growth Financial perspective Operating costs down Sales growth Make products more accessible through new and old distribution channels Customer perspective Improve "low cost" perception of potential & current clients Internal perspective Reduce costs by designing IT enabled processes Start up call centers and automated electronic distribution channels for internet Learning and growth perspective Increase employee productivity through ubiquitous capabilities Improve awareness about IT opportunities in the context of business activities Learn employees to use productivity tools

IT Balanced Scorecard and Business Balanced Scorecard (Nolan Norton) A retailer included IT-based capabilities in it's balanced business scorecard Increase sales by internal growth Financial perspective Increase sales with current clients through higher client satisfaction, minimize out-of-stock Win new clients through excellence in service and products Customer perspective Internal perspective Lower costs of staff and materials by using more efficient planning models New marking effort by introduction of client loyalty card linked to direct marketing systems Automated planning of supplies by integrating POS with external suppliers to distribution centers Learning and growth perspective Train employees in use of IT sales forecasting tools Train employees in service and selling skills

IT Balanced Scorecard and Business Balanced Scorecard (Gartner Group) Cascade of Business and IT balanced scorecards Financial 1. EPS Customer 1. Retention 2. Wallet share Internal 1. Service delivery 2. New services Innovation 1. Customer profiles 2. Web interface BUSINESS SCORECARD Customer 1. Web interface 2. Customer profiles Technology 1. Web tools 2. Data warehouse Process 1. Rapid prototyping 2. Data mgmt People 1. Recruitment 2. Training IT SCORECARD

Key Goal Indicators Definitions Describe the outcome of the process (i.e., measurable after the fact); are measures of “what,” and may describe the impact of not reaching the process goal Are indicators of the success of the process and its business contribution Focus on the customer and financial dimensions of the balanced scorecard

Key Goal Indicators Examples Increased level of service delivery Number of customers and cost per customer served Availability of systems and services Absence of integrity and confidentiality risks Cost-efficiency of processes and operations Confirmation of reliability and effectiveness Adherence to development cost and schedule Cost-efficiency of the process Staff productivity and morale Number of timely changes to processes and systems Improved productivity (e.g., delivery of value per employee)

Key Performance Indicators Definitions Are measures of “how well” the process is performing Predict the probability of success or failure Focus on the process and learning dimensions of the balanced scorecard Are expressed in precise, measurable terms Should help in improving the IT process

Key Performance Indicators Financial Examples Number of IT customers Cost per IT customer Cost-efficiency of IT processes up Delivery of IT value per employee Customer Process Level of service delivery Satisfaction of existing customers Number of new customers reached Number of new service delivery channels Availability of systems and services Developments on schedule and budget Throughput and response times Amount of errors and rework Information Learning Staff productivity and morale Number of staff trained in new techno/services Value delivery per employee Increased availability knowledge systems

Critical Success Factors Definitions Are the most important things to do to increase the probability of success of the process Are observable—usually measurable—characteristics of the organisation and process Focus on obtaining, maintaining and leveraging capability, skills and behaviour

Critical Success Factors Used to interpret business objectives in terms of actions required to achieve them Defined as “areas in which satisfactory results will ensure successful competitive performance” Typically 5-8 CSFs per objective Key Performance Indicators (KPIs) used to measure attainment of CSFs

Determining Critical Success Factors Identify objectives Identify CSFs against each objective Consolidate recurring CSFs across objectives IT CSF Questions - How can IT help attain the CSFs? - How do existing systems inhibit attainment of CSFs?

Problems/Concerns with CSFs Focus primarily on management control Tends to be internally focused & analytical instead of creative Reflect executive management style Often ‘critical’ is not adequately differentiated from ‘important’

Consolidated BSC & CSF Critical Success Factors can be linked to Balanced Scorecard Determine CSF from BSC Objective & Measures by identifying actions that would allow objectives to be met Model may extend one step further to IT/IS needs to carry out Actions/CSFs

Maturity Models Definitions Refer to business requirements (KGIs) and the enabling aspects (KPIs) at the different levels Are a scale that lend themselves to pragmatic comparison, where the difference can be made measurable in an easy manner Are recognisable as a profile of the enterprise in relation to IT governance and control Assist in determining as-is and to-be positions relative to IT governance and control maturity and analyse the gap Are not industry-specific nor generally applicable. The nature of the business determines what is an appropriate level.