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THE (UN)BALANCED
SCORECARD
R. CHANDRASEKHAR, SANJIV ANAND, R. SESHASAYEE, ATUL
PRADHAN, VIJAY M. CRISHNA
04/07/1999
Business Today
Page 99
Copyright 1999 Living Media India Ltd
THE CASE
Nineteen hundred and ninety-six had been a good year for Evergreen
Software (Evergreen), the Rs 125-crore financial services software-
developer. Still, Milind Pant, Evergreen's 36-year-old founder-CEO,
was not a happy man as he pulled into the parking-lot in front of his
office in central Mumbai one April morning. He was returning from a
meeting with Assessors India (Assessors), one of the country's 3
credit rating agencies.
Just over 5 months ago, Pant had decided that a $40-million (Rs
16.80 crore) Euroloan was the best way to finance Evergreen's
expansion plans. And a high credit-rating would help. The problem?
While Assessors had factored in the fundamentals, it had ignored
Evergreen's superb performance on non-financial parameters--
specifically, its 6 per cent employee -turnover rate, and its 80 per cent
customer-retention ratio-- resulting in a modest rating of B+, which
meant good, not excellent.
However, Assessors' CEO, Sunil Pande, 41, had thrown up his hands
in despair: "I do not have any objective way of measuring Evergreen's
performance in the areas you have highlighted. Why, even internally,
you don't have such systems."
Tired of his criticism, his A-team renewed its quest for a yardstick that
could help them measure Evergreen's non-financial performance,
which would also be invaluable from the strategic perspective. Then,
someone suggested the Balanced Scorecard. While Pant was
sceptical, that did not stop him from calling up William Robertson, a
31-year-old consultant who had earlier worked with the company, but
had returned to Boston for a year-long teaching assignment at a B-
School.
Robertson, who had just woken up, promised to e-mail Pant a short
note on the Scorecard. Next morning, Pant had his answer.
Pant addressed all his people before launching the initiative. At each
meeting, he would say the same thing: "We already have a vision
statement: To Be The Best Infotech Solutions Provider In The Global
Software Industry And To Consistently Achieve Excellence In
Everything We Do. As an organisation, we are also aware that the
only way to realise our vision is to build long-term relationships with
our employees and customers. Each of us knows what the key
success factors in our business are: people, speed of response, and
cost-effective delivery. I am aware that we are half-way through the
implementation of a TQM program. We have also been examining the
possibility of putting a number to our brand-equity, and our intellectual
capital. But these can go hand-in-hand with the Scorecard project.
Let's do it."
Evergreen faced its first problem in March, 1997, when some of its
software-developers--different, as that breed normally is--felt that the
company was using the Scorecard to get them to subsume the
individual's objectives to those of the organisation's. As Adite
Khanna, a 26-year- old programmer, put it: "There is some dichotomy
between the stated objective of the Scorecard to build an open
organisation, and the culture of acquiescence that it indirectly
encourages."
"I think what you are saying does make sense. But my approach was
a little different. Just as you prepare a Scorecard evaluation-sheet
every month, Vijay Mehta, down at quality, prepares one on our TQM
initiative. As you must be aware, we use the European Foundation of
Quality Management (EFQM) Model to assess our progress on that
front. Here, take a look at this month's evaluation-sheet," replied
Pant, and waited for Salwan to go through the sheet.
"As you can see, there is some similarity between this and the
Scorecard. Vijay, for one, believes that we do not need the Scorecard
at all when we have a TQM model that measures our performance on
several non-financial parameters too."
"By that logic, we should also look at the Flamholtz Model that we
used to put a number to our human capital," ruled Salwan.
"I was coming to that. Last year, for instance, we valued our people at
Rs 120 crore. And there's more. We also have the annual Employee
Satisfaction Survey. I believe what the Scorecard has actually done is
contributed to the information-overload. We are generating far too
much data. Sometimes, I feel this Scorecard thing has not worked for
us. It has not helped us improve strategy-generation; we already
have techniques that measure some of the parameters it purports to
measure; and our people are neither happy with the process nor with
us. It has created its own bureaucracy. I think I should call it quits with
the Scorecard," concluded Pant.
THE DISCUSSION
For instance, consider the company's concern about the threats that
increasing wage-costs and an over-dependence on a few customers
pose to its competitiveness. A correctly-designed Scorecard would
have addressed these issues. An experienced creator would have
inserted an objective that focused the business on being a value-
added provider of services. The resulting primary measure would
have been `x' per cent of sales from solutions.
Nor would have a seasoned creator left it at that. The follow-up would
have been a series of objectives in the other "Perspectives," as the
Scorecard terms them: the development of value-added products,
and the enhancement of skill-sets. Similarly, a correctly-designed
Scorecard would have addressed the over-dependence issue with a
measure on "Sales >From New Customers In The Last 24 months."
Secondly, any company that has just adopted the concept is prone to
underplay financial measures. This can be quite dangerous. No
company can compete in the absence of strong financial
fundamentals. It is important not to lose track of this while designing
and implementing the Scorecard. Finally, the format is not sacred.
Over time, every format keeps changing. Pant should immediately
initiate an extensive communications exercise, targeted at all his
employees, so that they understand the benefits of the tool.
At the outset, I would like to make three points. First, the measures
used in a Scorecard are always arranged in a hierarchical mode. It is
the pyramidal structure of its reporting that gives the concept its
richness. The measures that would interest the top management are
fewer, but qualitatively more significant. The measures that would
interest the operations, or middle-level management involve detailed
number- crunching. A Scorecard, as a whole, will incorporate many
measures. The actual number varies across organisations, and is a
function of size, business profile, and the critical success-factors. But
any report is customised for its end-user. It presents only those
measures that are appropriate to the relevant target-group.
Second, Scorecard measures are not static; they MORPH with the
changing business dynamics. That is what makes it contemporary.
Third, the technique is a means of implementing corporate strategy.
This means that you first need to have a strategy, and, of course, a
vision in place. The relevance, and the relative importance of the
various measures used in the technique is a function of the strategy.
In short, strategy bestows the concept with a sense of direction and
purpose. Without a strategy in place, the tool must work in a vacuum,
which is not only self-defeating, but also detrimental to the larger
interests of the organisation.
FINANCIAL MEASURES:
CUSTOMER MEASURES:
Evergreen should find out whether its customers are taking a long-
term view of its ability to meet their needs, both current and future. Do
its customers view the company as the one-point source for all their
future infotech-solution needs?
Evergreen should also measure its ability to estimate the time and
resources required to complete a project. This is easily done by
comparing the company's estimates with the actual time taken to
complete projects. The quality of the estimate is an important criterion
for a software-developer. A regular monitoring of this measure will
indicate what the company needs to do to improve its operational
effectiveness. After all, fallacious assumptions at this stage can lead
to incorrect deployment of resources at the wrong time in the wrong
project. There are a number of time-cost-quality benchmarks that
Evergreen can deploy to this end.
LEARNING MEASURES:
To add to the woes of self-taught experts like Pant, the printed word
oversells the conceptual bit (strategy), and downplays the process
(cause-and-effect relationships). Every company that has ever
implemented the Scorecard, like Evergreen, has faced the problem of
not being able to measure the parameters that it actually wants to
measure. However, what everyone seems to forget is that
measurement is the second phase. The tool requires a company to
align organisational initiatives, new or old, towards achieving the
company's objectives.