The bottom line has become the defining criteria for running a successful business. In the past few years, corporate executives have focused on improving their company's bottom line by maximizing profits and streamlining operations. But improving a corporation's overall cost-effectiveness is no overnight task. It takes close analysis of each department's operating costs and revenue generation and factors in planning for market projections. The movement toward corporate streamlining in the past few years has resulted in strong demand for enterprise resource planning (ERP) systems. Businesses have been able to use these systems to improve many internal operations.

However, for all the billions of dollars invested in ERP systems, most companies still have no way of knowing if their ERP-based operations support the overall corporate strategy. And even though ERP systems provide packaged, back office solutions to help day-to-day operations run better, they cannot help analyze performance against corporate objectives. Companies really need access to information captured by ERP systems and to measure and analyze operational data. They must also tie this data together and relate business performance back to the organization's overall objectives.

Consequently, organizations are increasingly turning to analytical software solutions to generate conclusive, fact-based and actionable information to help them effectively measure, analyze and optimize their business operations. Analytical applications enhance the performance of operational systems such as ERP applications, custom-built legacy applications and data warehouse infrastructures by analyzing increasing amounts of data buried in systems and driving "closed-loop" decision-making processes.


Hierarchy of Analytical Needs

Corporate executives looking to use analytical software solutions to maximize business performance need to realize that analytical needs are typically addressed in one of three categories — analyze operations, measure performance or manage strategy.


Analyze Operations

The need to analyze operations is a fundamental requirement of all organizations. It anticipates change in business conditions and trends, develops actionable information to better manage operations, and optimizes business processes. Operational analysis applications typically provide access to enterprise data, which can be summarized and stored in a multidimensional database for charting, graphing, "what if" analyses and more. Examples of such solutions include financial analysis and customer retention applications.


Measure Performance

As executives place more emphasis on measuring and managing business performance, they look to measurement solutions that will highlight key performance indicators (KPIs) to get a better view of their company's overall effectiveness. Performance measurement solutions usually provide access to objective weighting, traffic lighting, trending and charting. They also enable people to communicate and provide feedback on performance against these objectives.


Manage Strategy

At the next level, organizations increasingly seek critical management solutions to identify strategies that improve performance in every corporate department. Strategy management solutions link and align objectives throughout an enterprise, emphasize individual-driven assessments (versus data-driven assessments typically found in performance measurement solutions), show cause-and-effect across key performance measures, monitor and track initiatives, and communicate strategy to hundreds or thousands of people. A Balanced Scorecard exemplifies an effective strategy management solution.


The Balanced Scorecard

While all of the above solutions can be valuable to a company, the most strategic analytical solution is the Balanced Scorecard. It complements ERP systems by linking operational data to the overall business strategy. By consolidating and extending the information supply chain with financial and non-financial data, the Balanced Scorecard provides management with the ability to identify cause-and-effect relationships across key performance indicators and to manage the business more effectively.

Like an airplane's control panel, an automated Balanced Scorecard helps managers strategically steer their business by viewing both leading and lagging indicators. It builds the picture with financial and non-financial measurements, such as customer loyalty, quality, revenue and employee knowledge. An accurate view of these factors enables management to measure overall performance rather than just focusing on short-term, bottom-line results.

The Balanced Scorecard bridges the gap between high-level strategic goals and the front-line workers whose performance is ultimately responsible for achieving those goals. It does this by linking performance results with driving processes. By gathering and processing information from existing computer systems, the Balanced Scorecard determines if the company is meeting goals, and delivers a grade that everyone can view to see if the company is moving in the right direction.


Compelling Return on Investment

What is the value of successfully implementing your strategy? This is the essence of what a Balanced Scorecard can deliver for an organization. Consider the following reported results from successful implementations:

• A multibillion-dollar computer manufacturing company is expecting its Balanced Scorecard to deliver a 50 percent improvement in sales and a 25 percent decrease in operational costs.
  
  
• The U.S. Division of a large oil company, which has seen a 13 percent decline in income over the last five years, expects its recent Balanced Scorecard initiative to add $350 million to its bottom line over the next 10 years.
  
  Mobil Corp.'s U.S. Marketing and Refining division, a multibillion-dollar, 7,000-person business, was ranked last in its field in relative profitability in 1993. Two years after implementing a Scorecard, Mobil rebounded to number one in its field for profitability.
  
  
• CIGNA Property & Casualty (P&C;) took a $400 million loss in 1993. After a new management team was installed and a Balanced Scorecard was implemented, CIGNA became profitable by 1995 and its stock was up 80 percent.
  
  
• Brown & Root Engineering's Rockwater division was losing money until a Balanced Scorecard was introduced. By 1996, Brown & Root became number one in its niche for both growth and profitability.

These examples illustrate how successful Balanced Scorecard implementations can pluck a company out of the red and put it into the black, and in some cases, save it from going out of business all together.


Automation of the Balanced Scorecard is Essential

With the growing popularity of the Balanced Scorecard management approach, more companies are deciding to implement such software solutions through automated information systems. Why? Simply because automation helps ensure successful implementation of the methodology and removes many manual tasks associated with consolidating and disseminating information.

Automated solutions provide an environment to easily communicate new strategies to employees while allowing executives to obtain strategic performance-related feedback without time delays and extensive manpower investments. Non-automated solutions, such as paper or spreadsheet-based systems, take significantly more time to communicate changed objectives, to update scorecards, and to synchronize information across the organization. Also, such non-automated solutions do not provide automatic access to lower levels of details and comments, a critical component for understanding why things are happening.

The effectiveness and return on investment of the Balanced Scorecard increases as more users tie into the system. Therefore, it is critical that a Balanced Scorecard system can be widely deployed over computer networks. Providing a client/server or Web-enabled Scorecard solution delivers access and visibility into the system on all desktops as well as a networked environment to link and manage hundreds or thousands of Scorecards.

While ERP applications can encompass many of the measures utilized within a Balanced Scorecard system, not all key performance indicators are captured with the ERP system. An automated Balanced Scorecard system can automatically integrate and consolidate information from other types of data sources within an organization, such as data warehouses, data marts and mainframe, and other legacy applications. The Balanced Scorecard solution provides the "link" missing in many organizations — providing the platform to tie data/information in these operational and analytical systems back into the organization's overall strategic objectives.

Corporate executives who have implemented analytical applications in their companies realize that the best use of these applications is to extend them beyond the scorecard level to specific analytical applications such as customer retention, product profitability and financial reporting systems. An automated software solution can provide the

ability to do "drill down" or "reach through" analytical applications (what the Gartner Group refers to as Business Intelligence applications).


Major Scorecard Suppliers

Recognizing that the Balanced Scorecard is the most strategic of all analytical applications, many vendors are rushing to deliver scorecard solutions. In time, three major categories of providers will emerge for Balanced Scorecard software solutions — many of which will team up with existing players to address time-to-market and develop best-in-class solutions.


Analytical Application Vendors

The first vendors to address this market need have leveraged their analytical roots and enterprise software to automate the Balanced Scorecard. Typically, these solutions offer the most functionality out of the box, can easily connect to all enterprise data sources, and are flexible enough to include additional analytical capability in conjunction with the Scorecard. Gentia Software, having teamed with Renaissance Worldwide — the originators of the Balanced Scorecard methodology — is an example of a provider in this segment.


ERP Vendors

Virtually all of the major ERP vendors have recognized the strategic importance of tying many of the measures generated through their systems back to the organization's overall strategic objectives. And as a result, there has been a plethora of recent announcements made which should result in delivery of ERP-integrated Balanced Scorecards and performance measurement systems over the next 12-18 months. While these solutions will obviously tightly integrate with the suppliers' ERP, key concerns will include integration with other data sources within the company as well as further extension of the Scorecard system to include additional analytical capabilities. The issue organizations must ask themselves is can they afford to wait?


Systems Integrators/Consultants

Many of the leading management consulting organizations offer the ability to automate Balanced Scorecards. Renaissance Worldwide, for example, has partnered with software vendors, while others — such as KPMG — have created their own approach. In addition, IT consultancy and research organizations, such as Gartner Group (partnered with Gentia), META Group and Compass, are offering specialized Scorecards and associated performance measurement services for IT organizations.


Improving Overall Effectiveness

With efficient performance becoming more critical to the success, if not the survival of virtually every business, more companies are turning to Balanced Scorecard solutions to maximize their competitive advantage. Increasingly, companies are turning to a Balanced Scorecard as a strategic differentiator that separates high-growth businesses from those soon to be left behind.

By enabling businesses to fully maximize their investment in ERP applications, the Balanced Scorecard links operational data to strategy and business performance. Perhaps most importantly, it allows organizations to link long-term strategy with short-term actions. When integrated with other analytical solutions, the Balanced Scorecard helps drive business performance at strategic, management and operational levels by analyzing, measuring and communicating information at all levels within a company.

At the end of the day, it all comes down to how much value a company places on being able to successfully implement its strategy. Coupled with the operational efficiencies accomplished through ERP implementation, the Balanced Scorecard provides organizations with a high return-on-investment application that can significantly improve an organization's overall effectiveness.

And, just like with ERP, the organizational payback can be tremendous.

De-mystifying the Balanced Scorecard

As more vendors begin embracing the terminology, organizations need to be clear on the definition of a Balanced Scorecard. As a strategic performance management solution for aligning strategy with performance at all levels of an enterprise, a true Balanced Scorecard is much more than a performance measurement system and should incorporate the following capabilities: Linkage from the corporate vision to strategic objectives to key performance measures. Easy identification of "cause-and-effect" relationships across operations. Support for themes and initiative management. Creation and linkage of organization and personal scorecards. Support for individual assessments of objectives (although it can be complemented with data-driven assessments). Integration of both quantitative (ERP) and qualitative information. Dynamic communication and feedback. Easy set-up and maintenance. Enterprisewide deployment. Seamless integration with other software systems.

	ABOUT THE AUTHOR
	Michael Gaiss is vice president of corporate marketing at Gentia Software, Inc., Wakefield, Mass. He may be reached at (781) 224-0750 or [email protected]