Balanced
Scorecard In IT
A Balanced
Scorecard in IT can play a big role in a firm's bottom line. The
Balanced Scorecard was developed by Kaplan and Norton in 1992
(Kaplan & Norton, 1992). The rationale underlying the Balanced
Scorecard is that business performance should not be assessed using
a single financial indicator. The Balanced Scorecard in IT is a
framework that includes several indicators grouped into four
perspectives: customer perspective, internal perspective, innovation
and learning perspective, and financial perspective. When decision
makers have at a glance the four perspectives the risk of making
suboptimal decisions is diminished. The four perspectives show that
improvements in one area may affect other
areas.
However, the
Balanced Scorecard is more than a set of eclectic measures. The
purpose of the Balanced Scorecard in IT is to establish a link
between performance measures and a company's strategic vision. Even
though the Balanced Scorecard is not focused exclusively on
financial measures, it assumes that eventually all indicators in the
three remaining perspectives will affect financial performance.
Dealing with four perspectives should not imply an excessive number
of indicators. Only the most critical indicators that will
ultimately cause an increase in profits should be reported.
Indicators in the financial perspective show current performance.
The remainder three perspectives communicate future performance.
Despite of these factors we have seen that Balanced Scorecard in IT
is an essential tool.
Implementing
the Balanced Scorecard will not automatically yield profits to a
company. In fact, improvements obtained in different areas will
create capacity in excess (Kaplan & Norton, 1993). Companies
expecting to realize these financial benefits must eliminate the
excess of capacity by either downsizing or increasing volume. The
need to manage the exceeding capacity is critical when assessing IT
performance. Balanced Scorecard in IT might improve business
processes, but capitalizing on this improvement is out of control of
the IT function. Balanced Scorecard in IT investments typically has
a third-order financial effect (Mayor, 2000). That is to say, IT
benefits will be reflected in intermediate processes that will
eventually affect financial results.
Once a company
has implemented a Balanced Scorecard in IT, it is important to test
whether the strategy implemented is working properly or not. Leading
drivers hypothesize a cause-and-effect relationship. The link
between outcomes and drivers can be statistically tested. However,
statistics may not be viable in the short run, because it requires
the accumulation of data. In the short run managers should rely on
their personal judgments (Kaplan & Norton,
1992).
To investigate
the use of the Balanced Scorecard in IT performance a two-stage
research approach is proposed. The first stage uses a case study
methodology to explore how the Balanced Scorecard has been used in
different organizations. The protocol is a holistic multiple case
study to allow replication of the findings (Yin, 1994). The unit of
analysis is the BS of the IT function. Four different organizations
using the Balanced Scorecard in IT functions will be studied.
The
organizations will differ on the strategic role of the IT function
according to the strategic grid (factory, support, turnaround,
strategic) (Applegate, McFarlan, & McKenney, 1996). It is
expected that the outcomes and drivers chosen for the Balanced
Scorecard will differ depending on the role that the IT function
plays within an organization. In this sense, a multiple case
protocol will allow to observe different result based on theoretical
reasons (Yin, 1994). Data will be collected through open-ended
interviews to the Chief Information Officers. A pilot case study
will be conducted to refine the data collection plans. The main
research questions of stage one are: What are the outcomes and
drivers used to assess IT performance? Do the outcomes and drivers
differ depending on the role played by the IT
function?
The second
stage of the study will use a quantitative approach to assess the
relationship between drivers and outcomes. The Balanced Scorecard
assumes causality between drivers and outcomes. Therefore,
statistical causal models could be used to test cause-and-effect
relationships (Kaplan & Norton, 1992). This type of statistic
analysis requires an appropriate data set. For this reason, data
will be collected from an organization that has used the Balanced
Scorecard for several years. The unit of analysis is, as in the
first stage, the Balanced Scorecard in IT
function.
In Nabisco's IT
department, Donna Dietz, vice president in charge of enterprise
relationship management, uses a Balanced Scorecard that measures
IT's success in areas such as supply-chain management, marketing
systems, help desk, development projects, data center operations,
data networking and remote connectivity. The company is also
developing a measurement for salary competitiveness.
