Building an Effective Scorecard
Building an Effective Scorecard – In our previous blog, we looked at the Red, Amber, Green measurement system and established how this could add value to KPI reporting. Now, we will turn our attention to business scorecards themselves.
All organisations need to build an effective scorecard – whether or not they use a RAG system – in order to track and present KPIs in a readable, intuitive and meaningful way. But how can businesses get their scorecards right? Let’s review some good practices:
1. Select the right KPIs
KPIs are exactly that – key – and not just simple measures. The old business adage says that what is measured, gets improved, so your choices must completely support the business goals and objectives. For example, one goal might be to grow your online conversion rate by 3% in the next 6 months. A possible KPI to consider for this would be the abandonment rate for your online shopping cart.
If you are struggling for inspiration at this stage, take a look at some industry-standard KPIs as a useful starting point, but do remember that the final chosen set of KPIs must be specific to your business. Remember too, that the simple acid test for any KPI’s validity is to ask if it directly relates to a strategic business objective. If it does – you’re on track. If not, remove the KPI from your dashboard and reserve it for local or operational reporting where required.
2. Choose KPIs that represent your entire business
Choose a range of KPIs that represent the business as a holistic entity, rather than overly focusing on one area. Don’t, for example, zoom in on finance to the detriment of customer service, sales, fulfilment or logistics. The Balanced Scorecard method helps organizations to do this in the right way.
3. Select related KPIs
It’s important to choose KPIs that are relational. This means that measures are presented as a group, with contextual and comparison measures that help to reinforce conclusions and to establish trends. Without this, there is a danger of focusing excessively on one measure to the detriment of the bigger – and more accurate – picture.
4. Define the ‘right’ number of KPIs
Usually, an effective scorecard will have between 30-35 KPIs at the top level, but it’s important to find a balance that works for your organization and its strategic objectives. There needs to be enough KPIs to fully track the business’s progression towards strategic goals, but not so many that managers end up drowning in detail.
6. Remember the ‘lagging and leading’ blend
It’s also important to have a mix of both leading and lagging KPIs. The former shows how you are doing, and the latter demonstrates how you did. Neither is necessarily more useful than the other, but it is useful to have a mix. Lagging indicators will measure what happened, such as new customers acquired, total sales within a month or email sign-ups. These are great for establishing hard, output-based results. Leading indicators will assess progress and the chance of hitting a future goal, predicting what is likely to happen. Examples of these are sales rep activity (such as appointment bookings) conversion rates and online incoming traffic to your website. Many organizations automatically focus on lagging KPIs as they are easier to measure. However, if you can add in useful leading indicators, they will flag up trends as they emerge which can give a far better chance at success by showing whether or not you are on track.
7. Review and refine
Creating an effective scorecard and dashboards takes time and refinement. Rather than agonize over creating the ‘perfect’ reports from scratch, begin with a working prototype, seek feedback from your stakeholders and refine what you produce over time accordingly. Today’s automated systems make this far easier to do, by removing manual legwork and bringing in ready templates, widgets and technologies that streamline the process and make it far more intuitive.
Automating the process
Most modern businesses now use KPI software to create their KPI scorecards, as well as rich and informative dashboards in just a few clicks. These systems are packed with benefits. Not only do they make the process slick and rapid – by integrating with existing systems and providing ready-made widgets for easy dashboard design – but they also minimize the risk of human-led error, and allow KPI dashboards to be read and interrogated in a way that suits the learning style of the reader.
Even better, modern KPI software is designed to operate within world-class strategic management frameworks; guiding organizations at every stage through the process and improving their results.
Whether you are getting to grips with KPI scorecards or seeking to create a business strategy from scratch, our experienced team of strategy consultants are here to assist. The first step is usually to book a strategy workshop for the unique needs of your organization. Contact us to find out more.
Original Intrafocus blog can be accessed here