The Human Nature of Collaboration: Foibles and Capabilities

In the supply and value chain management discipline, the popular term is "seller-and-buyer collaboration." Observers note however that in practice this collaboration has been much more talk than action. Its lack of evidence is partly due to the long-term adversarial relationships where external suppliers and customers have been wary and mistrustful of each other. But aren't their also internal issues due to poor communications and lack of collaboration amongst employees? These are behavioral issues.

Scorecard software resolves problems related to inadequate collaboration and poor cooperation by adding rigor to what has traditionally been a very informal process that is broadly affected by human nature. Trust and suspicion are large factors involved with how people interact and influence one another.

The brass ring in the performance management arena is in fostering a cooperative and collaborative culture where strategy implementation is managed not by senior managers but by the middle level managers and employee teams that actually perform the work. To support this development scorecard systems create an environment where the various participants can communicate about the strategic goals and performance issues. It enables them to coordinate their actions in striving towards improved performance.

The scorecard software system has resulted in a platform that provides much more benefits than simple performance reporting. In addition to capturing historic, current, and forecasted performance levels, Scorecard software also provides a communication platform for the individuals and teams responsible for managing performance. This collaborative environment enables the various players to share all aspects of performance and captures a chronology of commentary on each strategic goal.

Progress towards attaining strategies always involves work. For important initiatives, what things people work on is highly dependent on well-reasoned action plans - otherwise people find other personal priorities to work on. Scorecard systems assist in managing these initiatives by tracking each initiative or project and linking them to the strategic goals that they have impact upon. The intent, benefits, resources, budget, and ownership are tracked allowing the scorecard users to easily document their efforts in making major performance gains.

Communicating the intent of strategic goals is as important to their success as tracking the performance indicators. Educating the entire organization on the full meaning of each strategic objective allows an individual to internalize the goals and adopt strategy designed by senior managers as his or her own.

Finally, regardless of which particular measures are selected, you want a scorecard - not a report card. There is a distinction. Scorecards are not about accounting police work. This is not about who has been good and who has been bad. It is about uniting the organizational muscle to get much more traction. It is true that responsibility and accountability are important. However, for many employee teams, much of what they strive for is influenced by the priorities and performance of their co-workers. Managers and employee teams should contribute to the selection of the measures. They usually know their surroundings better than anyone else. Senior executives are encouraged to try less to monitor performance to judge but rather to communicate what needs to be adjusted.

Where Does the Data Come From?

Sometimes internal business meetings never really get started until people stop arguing about where everybody got their numbers! Often there are inconsistencies amongst similar data from multiple sources. Scorecarding will not automatically solve this problem (and perhaps data warehouses will never fully fix it). What scorecards will do however is tighten the organization's consensus about what really matters and what best describes attending to the things that matter.

Measurement data can come in all types, including "yes/no" and "complete/incomplete" text-form measures. Subjective measures are totally acceptable to scorecards and may be the most economical form of input. Scorecard data comes from a diverse number of sources. The exceptional scorecard software has powerful capabilities to import and export data to the web-server where the scorecard software and intelligence resides.

Scorecards represent the highest level of strategic analytical applications; capturing enterprise strategic intent and measuring performance against goals. The data captured in a scorecard is necessarily quite broad but not very deep. Scorecard initiatives benefit greatly by linking with other process specific analytical applications that provide the bottom-up analysis that enables managers to drill down to the true causes of performance problems.

The notion of managing leading indicator processes to achieve desirable lagging indicator results and outputs is a central idea behind performance management. One of the pillars of evaluation and decision analysis is managerial accounting data. Although period-end reported sales, profits, and spending are the ultimate in after-the-fact lagging indicators, the price and computed cost data are useful and popular leading indicator in scorecards - particularly per-each unit cost data. Activity based cost management (ABC/M) systems are a perfect source for this kind of data.

ABC/M's reliable data can be used to both assess past progress and support future decisions. In its most basic form, ABC/M is simply data that are a means to an end. ABC/M should not be considered as an "improvement program" because then it may be perceived as a temporary fad or project-of-the-month. In reality ABC/M simply reflects the economics of how an organization behaves and consumes expenses, and the output of the ABC/M calculation engine is always the input to something else. More specifically, the output of ABC/M is an excellent input for performance measurement systems.

The outputs of ABC/M are excellent inputs to a scorecard system. Let's not confuse ABC/M and performance measures. ABC/M is not the measurement system. The output of ABC/M can be an important input to performance measurements in a scorecard system. The presence of ABC/M data can stimulate greater number of actions and decisions.

ABC/M is not a prerequisite for designing and using a scorecard system. Scorecards are much more about communicating strategies to employees and increasing alignment of execution of the work to stay focused on the strategies. But the existence of ABC/M data can populate the scorecard framework with robust and high-octane information.

With fact-based and relevant cost data, managers and teams can see things they had never seen before-and some of it might not be pretty. They really find out, for example, what the true cost is to process an individual customer return. They can differentiate profitable from unprofitable customers. They can isolate the location, amount, and cost of unused and available processing capacity. It is important to treat ABC/M data responsibly. Often organizations are surprised when they see the truth about the consumption patterns from their cost structure. As with scorecards, finding someone to blame is not the point of having ABC/M data. The key is to use the ABC/M data as a guide for better decisions, and use the data for performance measures as a valuable benefit.

Whether or not the ABC/M data measure the work activity costs, the processes that the activities belong to, or the outputs, ABC/M makes scorecards easier to populate. This is because ABC/M already has correct and true numbers in place, and in a format designed for decision support. Some organizations have initially designed their scorecards without cost data. This leaves gaps or incorrect "allocations" that corrupt the result measurements. Adding ABC/M fills in the weak spots.

With the visibility created by ABC/M, organizations can identify where to remove waste, low-value-adding costs, and unused capacity, as well as understand what drives their costs. With ABC/M, businesses can measure where they are and are not profitable, and also understand why.

Some perceive ABC/M as just another way to spin financial data rather than as useful, mission-critical managerial information. However practitioners view ABC/M as essential for good decision making. Also, in the past, an ABC/M project was just that, a project, and not viewed as a repeatable and reliable reporting system. As a project, ABC/M helps fix the problem and then the project is done. In contrast, for those who recognize their value, scorecards quickly become essential to be maintained and regularly reported. By combining ABC/M with scorecarding, there is an imperative to maintain the ABC/M system because ABC/M becomes an important feeder system of data into the scorecarding system.

Scorecards as the Key Enabler for Performance Management

In today's environment, a business's road is no longer long and straight, it is windy with bends and hills that don't allow much visibility or certainty about the future. Organizations must be agile and continuously transform their cost structure and work activities. This is difficult to do when employees and managers do not understand their own strategies, cost structure, and economics. It is much easier for organizations to transform themselves when their performance measurement system links and communicates their strategies to the behavior of their employees. Following are some reinforcing observations about scorecards:

• Scorecards help organizations move from being financially driven to mission-driven.

• If you fail to tie measures to strategy, you miss the chief benefit of the scorecard: alignment.

• The scorecard's purpose is to translate strategy into measures that uniquely communicate the senior executive's vision to the organization.

• Ironically the dominant use of scorecard software systems is e-mail dialogs for rapid messaging and note-taking documentation to prevent organizational amnesia that plagues everybody. This unexpected surprise to emphasize e-mail dialogs through the scoreboard platform is stimulated from having scorecards routinely populated and published.

In short, failing to link measures to strategies will cause misalignment of the cost structure with the strategy. Because monitoring strategy attainment usually relies on output or results measures, those lagging measures need to be translated into more process-operational leading measures. Competing measures need to be minimized.

In the end, if the organization is performing, the rewards go to the investors in the form of returns or to the governing boards in the form of mission accomplishment. Scorecards provide a comprehensive tool that can coordinate and propel large numbers of employees.

This ends Part 2 of 2