Automating the balanced scorecard: as a company grows, it needs a software package that fulfills its needs for charting scorecard measures. Make sure yours has what you need.

In prior articles in CMA Management, we have examined the design process for scorecarding systems and indicated attributes of these systems that contribute to their successful implementation. Another consideration in the implementation of these systems is the degree to which the system will be automated, both for updating data and disseminating reports. We consider here the effect of automation on the success of a scorecarding system implementation. We also discuss the various types of software available, the deployment of the software, and other automation-related issues. Our analysis is supplemented by the insights provided by our survey of scorecarding usage by North American organizations, sponsored by the AICPA, CAM-I, CMA Canada, IQPC, Targus Corporation, and Hyperion Solutions.

Software use

Periodically updating data and preparing scorecard reports can involve considerable time and effort. Our survey results indicate that 70% of organizations with scorecarding systems use some type of software in their implementation to reduce this effort. Of these organizations, 31% use off-the-shelf software, 43% use software developed in-house (such as a spreadsheet or database application), and 27% use both types.

The use of software to implement scorecarding systems increases with organization size. As shown in Exhibit 1, most (59%) small organizations (less than 100 employees) don't use software for these systems. This percentage decreases as the size of the organization increases, down to 15% for the largest organizations. Off-the-shelf (OTS) software is used by only 18% of organizations with 100 or fewer employees. This percentage increases with organization size, up to 62% for organizations with more than 10,000 employees. The same generally holds true for software developed in-house, with 35% of the smallest organizations using this software compared to 62% for the largest organizations.

A major advantage of using software is that it frees up time that would otherwise be devoted to non-value-added activities, such as updating data. This gives employees a chance to ask the question, "why are we doing what we're doing?" The software encourages change in an organization's processes, which is critical to performance improvement. Our survey results support this idea: organizations that use in-house developed software report greater benefits from their scorecarding systems than those that don't use software.

When implementing scorecarding systems, organizations may start out with a relatively simple systems. Many use a manual system initially; others use a series of spreadsheets. As their scorecarding expertise growths, and as they become more secure in the knowledge that this isn't a flavour-of-the-month management tool that may go away, they become dis-enchanted with the limits of their simple systems, and they migrate to the more sophisticated systems needed for the on-going success of their scorecarding system.

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The longer an organization has been scorecarding, the more likely it is to use software to track its performance measures. Only 56% of organizations that have been scorecarding for less than a year use some type of software. This increases to more than 70% for those who have been scorecarding for 1 to 6 years, and 100% for those scorecarding more than 6 years. The increase in software use is true for both off-the-shelf software and for software developed in-house.

Very roughly speaking, we found that--regardless of the length of time that an organization has been scorecarding--about half the organizations are using the same software for scorecarding that they started with. Thus, while it's important to choose software wisely due to the large amount of work needed to change packages, organizations shouldn't be afraid to upgrade their software as the need arises.

Software options

The most commonly used software package, employed by 36% of the scorecarding organizations using a software package, was MS Office, primarily Excel. Next most com-monly used were Hyperion's Performance Scorecard and OROS. The rate of use of these packages is related to the length of time that the organizations have been using their current software package. MS Office is used by all the organizations that have been using their scorecarding package for five or more years. OROS was the most frequently used package for organizations that have been using their software for three to four years, and Hyperion's Performance Scorecard was the most prevalent package for organizations using their scorecarding software for one to two years.

One of the most desired features of a scorecarding system is report design flexibility. This feature, in addition to ease of use and software availability, accounts for the popularity of spreadsheet packages. This flexibility, however, is at times dangerous, because it can provide employees with an opportunity to engage in gamesmanship. It also makes benchmarking scorecards across performance units difficult.

Scorecarding systems organized as a series of spreadsheets have other drawbacks, including system maintenance problems. As one survey respondent indicated, "The off-the-shelf packages tended to be too expensive, so we developed our internal package utilizing a data warehouse and Excel. This system is cumbersome and highly inefficient." Another survey participant said, "We have rolled out an electronic scorecarding system somewhat successfully through use of spreadsheets. However, data storage is a critical shortfall of this method. We are currently looking for a more efficient way to report our scorecard."

Scorecarding software packages have the advantage over spreadsheet software of better data security, of being a more focused tool, and of providing "one truth" regarding the mission and strategy of the organization. However, they lack the flexibility of spreadsheet software. Again, while this may be considered a drawback from the individual manager's perspective, from an organizational point of view, standardizing reports has it advantages.

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Deployment

The number of people using the scorecarding software, either to view reports or to enter data, varies widely. In some organizations, less than 1% of the employees use the software; other organizations give all employees access to their scorecard.

Scorecarding software can be used at a variety of levels in organizations. Some organizations use it primarily for top management, others primarily for operations management. As demonstrated in Exhibit 2, it's used most frequently at all levels of management.

As expected, organizations that mostly use software at the top management level tend to have few software users. The number of users increases as more levels of management use the software. Similarly, the larger an organization, the more likely more levels of management use the software.

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Reporting results

Scorecard results can be reported by a variety of means. As shown in Exhibit 3, performance results are reported about equally by means of the Web, use of a local area network (LAN) or wide area network (WAN), and by paper. Less commonly used as a means of distributing results is e-mail.

Scorecarding systems reporting only to top management or only to operations management are more likely to be paper-based than those reporting to other levels of management. Systems that are used primarily by operations management but also by top management are more likely to be Web-based; those used primarily by top management but also by operations management are more likely to be LAN-based.

The means of reporting scorecard results varies by organization size: larger organizations use more technologically sophisticated means of reporting. The smallest organizations (with 100 or fewer employees) primarily use paper-based reporting. Organizations with 101-1,000 employees are most likely to use e-mail; those with 1,001 to 10,000 employees are most likely to use Web-based reporting, and those with more than 10,000 employees are most likely to use LAN or WAN reporting.

Those organizations reporting results via e-mail are least likely to report scorecarding success; those reporting using the Web are most likely to report success. In our survey, a significant number of organizations reported that their ability to provide results via an intranet was the software feature that most enabled their rollout of scorecards.

As might be expected, the means of reporting results is affected by the type of software employed. If no software is used for the scorecarding system, the results are reported on paper. If off-the-shelf software is used, LAN-based reporting is most common. Organizations that develop in-house software are the most likely to use Web-based reporting, and these organizations are also the most likely to report significant benefits from their scorecarding system. This shows the importance of organizations devoting sufficient resources for a thorough implementation of their scorecarding system to achieve maximum benefits from it.

Desirable features

According to our survey, by far the most important feature in a system is the ability to provide Web-based reporting. This was followed, in order of importance, by the ability to drill down to root data, the ability to customize reports, and the ability to link scorecards and roll them up.

System flexibility

No one gets scorecards right the first time, and implementing a scorecarding system should be viewed as an iterative process. Most organizations will eventually feel either that they have too many measures or not the right ones. For many organizations, many of the performance measures that they track are redundant. These organizations are performing unnecessary work. Additionally, having this many performance measures is no guarantee that the organization has the right measures. An organization will eventually feel that it has to add, take away, or change its performance measures as it receives feedback from users. Thus flexibility is a critical feature in scorecard automation.

Flexibility is also required due to changes in data processing systems. Organizations may roll out ERP systems, install mainframes, or install other systems. Again, automation must be flexible to accommodate these changes.

When automating its scorecarding system, an organization needs to spend the time upfront to think through its entire vision. The new system should not just replicate what the organization is doing manually unless the existing system makes sense. System requirements and design should be adequately specified. Organizations that don't pay now by adequately planning the new system will certainly pay later.

Data accessibility

Flexibility and data accessibility are related, critical concepts. Numerous organizations have indicated that the successful rollout of an automated scorecarding system depended on data accessibility. One organization indicated that its ability to successfully implement an electronic scorecarding system was due to "automated data extraction from the mainframe and other databases." Other organizations indicated that their failure to implement an electronic system was due to the lack of "compatibility with a wide variety of databases, financial and ERP applications," and the lack of "integration of multiple systems."

While organizations can achieve significant benefits from initial implementations of scorecarding systems that are manual or based on spreadsheets, they will eventually feel the need for more sophisticated systems, using either in-house developed software or a commercially available scorecarding package. When selecting a package or designing a system, organizations should look for one that has the ability to provide Web-based reporting, to drill down to root data, to customize reports, and to link scorecards and roll them up. The system needs to be able to access data from legacy systems and other data sources, and needs to be flexible enough to easily accommodate future changes to the scorecarding system. By selecting or designing a system with these features, an organization can maximize the benefits it gets from its scorecarding system.

The results presented here are from the first phase of our scorecarding study. The next phase of the on-line scorecarding study, open to participants worldwide, is now commencing, and interested readers are invited to participate in the study by going to http://graziadio.pepperdine.edu/shaps.

Dr. Raef Lawson and Dr. William Stratton are the supervisors of this study. Dr. Lawson is a professor at the University at Albany, State University of New York and can be reached at [e-mail]. Dr. Stratton is a professor at Pepperdine University and can be reached at [e-mail]. For information on becoming a sponsor, contact the study coordinator, Toby Hatch of Hyperion Solutions, at [e-mail]. Our thanks to Jose Contreras for his assistance.