The most successful organizations have moved beyond just using process improvement tools and methods; they now have fully aligned and integrated strategic management systems. These organizations, regardless of industry, have a set of balanced measures that help drive tactics and performance from top to bottom.
The measures driving performance include more than just the traditional financial measures, which is why it's often called a “balanced scorecard.” The creators of the “balanced scorecard” say that:
Financial measures are inadequate... for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.
A balanced scorecard often includes the following high-level categories:
Internal business processes
Learning and growth
Each of these categories would have more specific sub measures, such as days of cash on hand (finance) or patient satisfaction (customer). A manufacturing company or other for-profit business might have similar goals, even though they have customers, instead of patients.
We see similar approaches being used in the “hoshin kanri” (aka “strategy deployment”) methodology that’s used as part of the Lean management system. The Japanese term translates to mean “management compass,” referring to the measures and plans that align and point the organization in the right direction.
Both the balanced scorecard and hoshin kanri drive the organization to choose tactics, projects, and methods that improve those measures. Setting goals is not enough; leadership must ask the organization how they are going to accomplish those goals.
When setting up goals and metrics related to categories like safety, quality, customer satisfaction, and financial performance, it's important to do more than just present dense tables of numbers. A very important book, Understanding Variation, by Donald Wheeler, shows how these tables can be hard to interpret. Check out this example from a hospital department:
And they called that a “dashboard.” Could you imagine if your car’s dashboard displayed your speed as a number in a table of numbers that showed your speed over time? Thankfully, a good dashboard only shows a few key performance indicators (or KPIs).
In that table, can you see which metrics are getting better and which are getting worse? Can you easily see which metrics are meeting goals and which are not?
By comparison, “run charts” help us better visualize data to see trends and make better decisions. A simple run chart can be created in Excel as a “line chart,” as shown below:
A run chart like that is a far better display of data, such as “average minutes per case,” than the text-filled “dashboard.” We can more clearly see trends, or noise in the data, and if the data seems stable over time.
Balanced scorecards often display a number of run charts, giving a visual illustration of all of the measures at a glance. A visual balanced scorecard helps leaders see where they should focus their attention - what needs improvement, what areas are doing well, and are there any trends?