“Tell your statistics to shut up.”
– Leo Durocher, baseball manager, when one of his players claimed he was the best in the league based on hitting and fielding percentages
Here in the land of Gonz, we’re hearing a lot of buzz about balanced corporate scorecards and corporate performance management.
Some background on the topic. The whole idea of balanced scorecards took off in 1992 when the Harvard Business Review published an article by David Norton and Robert Kaplan. They proposed that any scorecard should incorporate four major areas when measuring performance:
There have literally been hundreds of variations of this idea promoted since, but the idea hasn’t really changed that much – banks need to have some way to look at performance that ensures all parties in the game – owners, shareholders, customers, and employees – have their interests represented. This is really the key to the concept of “balanced.” Equally key to this is the idea that the measurements must be fact-based, i.e. all parties need to agree that the results being measured, if achieved, will return the required overall return and value promised.
Having seen the idea play out at many banks in our travels, we at Cornerstone put this whole concept in the same category as Six Sigma, creation of a sales culture and other major strategic projects undertaken in the financial industry in the last few years. Done right, it can bring about real change and bottom-line results. Done wrong or without focus, it will become the corporate equivalent of pushing a boulder up a hill – employees will see it as another burden and tick off the days on their calendars until it goes away (again).
Banks absolutely need a scorecard. Like Tom Peters said, “what gets measured gets done.” Here are some Gonzoesque suggestions about how to make scorecards become strong, useful tools at your shop.
A good scorecard, in our experience, is one that represents those things the bank has identified as strategic differentiators. That may be specific industry niche, where the scorecard measures penetration of that particular market. It may be efficiency of delivery, when the scorecard would lean toward more efficiency/speed criteria. It may be service, where customer satisfaction and retention are emphasized.
Time after time, however, we see scorecards that are too similar from bank to bank. No matter what the strategic focus, the same measurements are used – ROA, earnings growth, percentage of satisfied customers, assets per employee, etc. The result is a scorecard that may be necessary but not particularly useful.
This works against one of the most important goals of any scorecard, which is to make it clear to employees where they need to focus and where the bank is different.
Look at your scorecard and ask this question: If I were looking at a scorecard for my key competitors, would mine be any different or would we all have essentially the same thing? If the answer is the latter, you need to challenge what you are measuring, or the specificity of your strategic plan, or both.
There are a number of factors a bank must measure that may be necessary to track but at the same time may not serve to focus or excite employees much. For example, almost every institution (or vendor, for that matter) I know measures customer satisfaction. I can also say that every, and I mean every, analysis I read shows that more than 90%-95% of customers are happy or satisfied. When such a number is shown over and over again, it tends to lose its ability to inspire any big change in behavior. It may still be important, but it needs to be supplemented with some other components that are fresher.
Often, we see very specific and targeted scorecard components can rally and focus employees. Some examples:
Key here is that these elements are specific enough that employees can get their hands around them, and they can easily be translated into financial results.
Building a scorecard is naturally an inclusive process where management wants everybody to have input. However, banks need to guard against the “little bit of this, little bit of that” effect. In our experience, this type of approach can produce a lack of focus on what’s really important. A scorecard with 50 measurements can cause everybody to focus 1/50 th of their energy on each. A smaller number of non-negotiable goals can have a far more powerful effect on the troops.
One of the more frustrating aspects of scorecards can be finding the right internal data or external/internal target to perform the measurement. For example, you may want to measure return on training dollars. Not a bad idea. However, how do you actually measure the return? There is no real ROI model, no target number to start with, and far too many assumptions needed to produce information that could be deemed actionable.
Sometimes, banks may need to sacrifice a scorecard component that is important because good information to target goals or track is just not available. However, removing a component from a scorecard is far better than leaving it on the scorecard with fuzzy measuring.
An old-time colleague, Larry Adams, has what he calls the five minute test. If most employees could look at something like a corporate scorecard and not understand what it was trying to accomplish inside five minutes, it is probably too complicated and needs re-working.
This may be a bit extreme, but it is important that your employees look at your strategic goals and your scorecard and have a good, intuitive understanding of the relationship very quickly.
Make sure everybody has a copy of the scorecard, CEO to night watchman. I spend a lot of time in the field with bank employees, and I always ask them what the biggest corporate goals are for the year. Too many of them don’t know.
On the other hand, I was in a bank call center recently where every employee had a copy of the corporate scorecard, a copy of their department goals, and lines drawn between the department goals and the corporate scorecard components to show how one supported the other. That vision and purpose was very strong, and employee effort reflected it.
In summary, successful scorecards are like successful financial institutions – they are focused, different, honest, realistic, and consistent.
Gary Cokins of SAS said that what’s needed in a scorecard is “fact-based data that brings more visibility to managers and employee teams, so that actions are taken rather than pondered.” When you have pondered that idea, get acting on a scorecard.