University of Hanover

Faculty of Economics

Institute for Information Systems Research

Prof. Dr. Michael Breitner

tutor: Dipl.-Oek. Patrick Bartels

 

Seminar on

Data- and Information Management

summer term 2005

(71407)

 

IT-Balanced Scorecard and Information Management

 

 

Arkadius Gemlik

E-Mail: akiweb@gmx.net

1           Introduction and Overview

One of the fundamental objectives of information technology (IT) is to improve the quality of information, i.e. “the bits that tell a producer exactly what to do, when, for whom and what knowledge bases and tools to use. Having done so, output becomes more accurate and precise, thus reducing cost, improving customer satisfaction and possibly opening up some new options of how to create value.” (cf. [Lill01], p. 1)

In the 1990s IT-Systems remained an indispensable part of corporate infrastructure as “business enabler”, but they also increasingly became core business (cf. [Blom02], p. 21) and crucial to achieve organisational and strategic goals, so that a pure technical approach is no longer sufficient. But determining the benefits gained from IT investments to improve business processes and the fact that benefits of these investments often might not be as high as initially expected has long eluded researchers and practitioners.

Already in 1987 Robert Solow (cf. [Solo87], p. 36) warned that there should not be causeless expectations in IT when he wrote his famous line that "we see the computer age everywhere but in the productivity statistics". Productivity is not everything, but, according to Paul Krugman (cf. [Krug96]), in the long run it is almost everything. The term IT productivity paradox was introduced to describe observations that on a macro level it has been virtually impossible to find any correlation between IT investments and productivity, or any financial indicator for that matter. Recent research (cf. [BrHi98]) has shown that the productivity paradox may not be real, or at least not permanent. Applying technology to business takes a while, and measuring its impact is complex.

At the corporate level it is plausible that investments are not done with increased competitiveness in mind, but simply to stay in the race. If one competitor starts to invest in IT and receives some benefits from it, it is obvious that a generally available technology will not for long provide sustainable advantage. As the performance of all competitors increase, none is able to command a price premium and in the end, benefits often go to customers in the form of qualitative improvements in products and services. According to Porter (cf. [Port80]), advantages are not produced by generic solutions but by customisation and application to particular processes.

Technical innovations should be assessed on how they contribute to corporate objectives, but the question thus remains how to evaluate and assess the impact of IT on business processes. The problem managing the IT is illustrated in figure 1:

 

Figure 1 Struggle with managing the IT resource (own illustration, according to [Gold02])

 

Technology by itself is doing anything and there is “no direct link from IT to the bottom line” (cf. [Lill01], p.1). Therefore it is asked for measuring the benefits of IT in operational terms close to the interface between operational and financial indicators.

Furthermore the rapidity of technological development extended the range of the IT function that include in a wide dimension all principles, methods and tools for purchasing, processing, transmission and disposition of information as well as the engineering and utilisation of information systems and forced a strategic alignment of all IT-organisational activities.

Objectives and tasks of IT may differ in dependence on the individual corporate situation (cf. [Hein02]), but it will be always necessary to evaluate the achievement potential of the IT function and to implement a strategic management system to achieve the strategic objectives like effectiveness (“to do the right things”) and efficiency (“to do the things right”) to ensure flexibility and optimal allocation of resources.

The Balanced Scorecard (BSC) found its way to evaluate IT and its investments.

This paperwork discusses the BSC method in applying for IT with main attention to the components of a generic Balanced Scorecard for an IT organisation within a corporation.

It begins with a short overview of the basic principles of the original BSC and its main concept. Proceeding with the historical background of this area of research will help to understand the transfer from the corporate concept to a shared-service unit concept, which is important because many IT departments have that form of organisation.

Furthermore follows a short insight into different IT-BSC concepts, considering specialties of IT organisation.

Derived from the original BSC components, a detailed description of generic IT-BSC components will be shown. This transfer is confronted with two kinds of tasks. One task lies in trying to assess the contribution to corporate objectives. The other focuses on assessing the general IT function.

In conclusion with the necessary information, not only the problems but also the advantages of an IT-BSC are examined. Finally the main aspects of this paperwork are recapitulated in addition to a personal evaluation and a view of future developments.

 

2           Basic principles of the Balanced Scorecard

2.1         Origin and concept

Developed in three articles published in the Harvard Business Review by Kaplan and Norton (cf. [KaNo92], [KaNo93], [KaNo96a]), the BSC has become a popular tool for managing the performance of organisations and, in parts, for the development of strategy itself. It is based on the premise that financial measures only report the results of past decisions and that, if performance measurement is to have any real meaningful impact, a more balanced set of objectives and measures is required. Benefits of management decisions are not only measured in monetary outcomes, but also in their contribution to strategic objectives. The strategy is mapped by strategic objectives and becomes measurable by means of monetary and non-monetary measures.

Kaplan and Norton (cf. [KaNo96b], p. 2) compare the BSC with the instruments in a plane’s cockpit. Managers as well as pilots need instrumentation about many aspects of their environment and performance to monitor the journey toward excellent future outcomes and the BSC provides them with the strategic important measures they need to navigate to competitive success. With this management system thus it is possible to translate an organisation’s mission and strategy through strategic initiatives and actions.

 

Gold (cf. [Gold02], p. 13) describes the BSC method as:

 

• a framework, that describes the strategy of an organisation across four perspectives (Financial, Customer, Internal Processes, Learning and Growth)
• a communication system, that bridges the gap between goals set by senior executives and front line workers whose performance is ultimately responsible for reaching them
• a measurement system, that reports on past operating performance and the drivers of future performance
• a management process, for implementing and managing organisational change via strategic feedback and learning

 

A strategy-focused organisation is illustrated in figure 2.1.:

 

Figure 2.1 Strategy-focused organisation (own illustration, according to [KaNo01b])

 

On developing and implementing a BSC there are two main steps to differ.

Firstly, a strategy has to be mapped on this framework, so that on the one hand the strategy can be communicated to all divisions of the company and on the other hand the performance can be measured. Traditional short-term oriented financial indicators that report on past operating performance are linked on strategy maps with cause-and-effect relationships to indicators of the other perspectives that disclose the drivers of future performance.

Secondly, organisational requirements have to be created to allow a strategic alignment of all management activities. The management process links management by objectives and incentive systems to performance indicators of the BSC, aligns resources to initiatives with the highest potential to strategic performance and enhances the present strategy in a feedback and learning process.

 

2.2         Perspectives

Traditional accounting models tell the story of past events by controlling and monitoring past performance (cf. [KaNo96b], pp. 6). Navigating to a more competitive, technological, and capability-driven future cannot be accomplished merely by them. The impact of the information age environment requires new capabilities for competitive success. The ability of a company to mobilise and exploit its intangible or invisible assets become far more decisive than investing and managing physical, tangible assets (cf. [Itam87]). Although not defined by the author, invisible assets are considered as the most important resource in the production processes of firms. These assets, the author claims, are based on information and can include anything from brand loyalty (the result of information from the company to the environment), to technological or technical skills (with information flowing from the environment to the company), to internal goodwill (presumably helped by free flow of information inside the company). Investments in long-term effective intangible assets like customer loyalty, flexible and efficient business processes, data bases or human capital are drivers of future outcomes, but in short term they are only costs. In the traditional accounting model they drain on finance results.

Other disadvantages of traditional performance measurement systems are the missing of strategic alignment or the incapability to implicate future initiatives, but one of the most important skills in any business is the ability to translate strategy into action. In larger or more complex organisations, where the distance between those who formulate the strategy and those who carry it out is significant, this is increasingly difficult. The necessity for communicating strategic intent and for providing a management framework that aligns the capabilities of the business with the requirements of the competitive marketplace comes with size and complexity. In 1982, a survey of management consultants (cf. [Kiec82]) reported that less than 10 percent of effectively formulated strategies were implemented successfully. A 1999 Fortune article (cf. [Char99]), stated that for organisations that ran into financial trouble, in 70% of the cases this trouble was not caused by the inability of management of coming up with the right strategy but of executing this strategy.

 

The BSC concept overcomes these deficits with the idea that traditional financial measures should be supplemented with operational measures concerning customer satisfaction, internal processes and the ability to innovate. These three measures would assure future financial results, and drive the organisation towards its strategic goals while keeping all four perspectives in balance.

Each perspective is seeking to address specific questions that are presented in Figure 2.2.

 

Figure 2.2 The Balanced Scorecard (own graphic, according to [KaNo96b], p. 9)

 

• The financial perspective links the company to its shareholders with main attention to the question: “How do we look to our shareholders and those with a financial interest in the organisation?” According to Copeland (cf. [Cope00], p. 97), the “fundamental goal of all businesses is to maximize shareholder value”, thus every implemented strategy should increase shareholder value at least.
• The customer perspective is the second external oriented perspective that takes a look at the organisation’s customers, who are the crucial factor for financial success generating revenue by buying products and services. The question is: “How do our customers perceive us in term of products, services, relationships and value-added?”
• The internal-business-process perspective measures focus on the internal processes that will have the greatest impact on customer satisfaction and achieving an organisation’s financial objectives.  Thus the question is: “What do we have to excel at if we are to meet the expectations of our employees and trading partners?”
• The learning and growth perspective identifies the infrastructure that the organisation must build to create long-term growth and improvement. Intense global competition requires that organisations continually improve their capabilities for delivering value to customers and shareholders. Thus the question remains: “To achieve our future vision, how will we continue to improve and create future value for our stakeholders?”

 

A strategy is a set of hypotheses about cause and effect. Thus a measurement system should make the relationships among objectives and measures in the perspectives explicit so that they can be managed and validated.

In a simple example (cf. [KaNo96b], pp. 30) that is also presented in figure 2.3 return-on-capital-employed (ROCE) may be a measure in the financial perspective. The driver of this measure could be repeated and expanded sales from existing customers, the result of a high degree of loyalty among those customers. So, customer loyalty is included on the BSC because it is expected to have a strong influence on ROCE. To achieve customer loyalty an analysis of customer preferences may reveal that on-time delivery (OTD) of orders is highly valued by customers. Thus, improved OTD is expected to lead to higher customer loyalty, which, in turn, is expected to lead to higher financial performance. So customer loyalty and OTD are incorporated into the customer perspective.

To achieve improved OTD, the business may need to achieve short cycle times in operating processes and high-quality internal processes, both factors that could be measured in the internal perspective.

 

Figure 2.3 Describing strategy with BSC (own illustration, according to [KaNo96b], p. 31)

 

To improve quality and reduce cycle times, training and improving the skills of their operating employees is required. These objectives would be candidates for the learning and growth perspective.

For each of the four perspectives, objectives can be established and relevant measures, often called key performance indicators (KPI), assigned each objective, leading to the information needed to evaluate and measure performance and compare target and actual business results of management by objectives. Furthermore operational initiatives are identified to achieve the established objectives as presented in figure 2.4.

 

Figure 2.4 Measures and targets (own illustration, according to [Gold02])

 

It is important to concentrate on a limited number of measures not to complicate this management system. The BSC should incorporate the complex set of cause-and-effect relationships among the critical variables, including leads, lags, feedback loops and mixtures of outcome measures and performance drivers (cf. [KaNo96b], p. 30).

For this Kaplan and Norton (cf. [KaNo96b], pp. 162) distinguish between diagnostic measures (“hygiene factors”) that plentifully exist in an organisational controlling system and monitor whether the business remains in control and can signal when unusual events are occurring that require immediate attention to management by exception and strategic measures that define a strategy designed for competitive excellence.

 

2.3         Balanced Scorecard and Shared Service Units

Strategies are typically defined for an organisational unit, referred to as a strategic business unit (SBU). In previous chapters the BSC was described in its original design to translate strategies into action in SBUs that are organised as profit centres which have their own products and services, external customers and different distribution processes.

It is also possible (cf. [KaNo96b], pp. 175) to use the BSC creating customer and operating synergies across different operating units or shared service units (SSUs).

SSUs are created at a corporate or divisional level because of economies of scale and the advantages of specialization and differentiation that these units can create (cf. [Gool94]). For example, a corporate role to “create economies of scale in the use of information technology” may require a central IT group to create these economies.

The challenge is for the centrally supplied service to be responsive to the strategies and needs of the SBUs it purports to serve. In practice, the SSU, while established to provide benefits from economies of scale and specialization, frequently ends up becoming bureaucratic, unresponsive and inflexible, and doesn’t deliver the desired economic benefits to operating divisions.

Creating a BSC for shared service units can align the strategies of the SSUs so that they add value and are responsive to the strategies and needs of the SBUs they serve.

When SSUs cannot outperform external competitors, companies should outsource these functions. And they should contract with their suppliers using a BSC rather than with just financial measures. This enables them to get the value and service levels they desire, not just a low price.

 

The BSC can be used to help link and align SSUs with SBUs and with the corporate strategy. When a top-down strategic architecture exists that defines the corporate role, SSUs can contribute to the corporate strategy, but they will use the BSC in a somewhat different manner. Kaplan and Norton (cf. [KaNo01b]) present two different models for developing shared service BSCs:

 

• The Strategic Partner model: The SBUs have developed BSCs, reflecting their strategies and corporate priorities. The SSU is a partner in this process.
• The Business-in-a-Business model: The SBUs do not have BSCs. The SSU must view itself as a business and the SBUs as its customers. The shared service BSC defines the relationships.

 

In the business-in-a-business model functional organisations such as IT often develop their BSC program to manage their organisations without a broader corporate program. The BSC enables executives of these functional units to build a professional management approach that can motivate their organisations to be customer-focused and competitive. The “functional excellence” that this promotes for the organisation offset some of the lost benefits and potential sub optimisation created when a BSC is being built for a functional unit without explicit linkages to SBUs and corporate BSCs.

For example, the functional BSC IT unit view itself as a “business in a business” and the SBUs as customers. It develops a professional interface with the SBUs similar to approaches that external vendors would take. The IT unit has certain advantages through internal knowledge and relationships, but it still must develop a market-based relationship. In turn, the SBU bears responsibility for integrating IT into its business strategy.

 

In the strategic partner model BSC organisations typically first develop scorecards for SBUs and subsequently, they develop BSCs for their SSUs.

This sequence is preferable and presented in figure 2.5 because it allows the strategy for the business units that create value external to the organisation to be clearly articulated and understood. Once the SBU BSCs have been developed, the SSUs can develop strategies and scorecards for their customers – the SBUs. The SSU strategy can thereby deliver the value proposition that provides the greatest benefit to the SBUs.

 

Figure 2.5 The IT unit supports strategic internal processes (cf. [Kapl03])

 

Creating the linkage from SBUs to SSUs requires four components:

 

• Service agreement: A formal agreement between the SBUs and the SSU defines expectations about services and costs.
• The SSU-BSC: The SSU develops a BSC that reflects its strategy to support the service agreement with the SBUs.
• The linkage BSC: The SSU accepts accountability for improving selected measures on SBU scorecards.
• Customer feedback: The SSU receives periodic feedback from the SBU about actual performance.

 

3           IT-Balanced Scorecard

3.1         Components of IT-Balanced Scorecard

In the previous chapter it has been illustrated how the BSC can be adopted by SBUs and in the extended concept also by SSUs. In order to position the IT-BSC, it is useful to develop the link between data, information and business results. Figure 3.1 illustrates such a model, the DIKAR model (Data, Information, Knowledge, Action, Results) derived from the work of Venkatraman (cf. [Venk96]).

 

Figure 3.1 Information in context (own illustration, according to the work of N. Venkatraman, 1996)

 

Viewing the model from left to right represents an IT perspective where the focus is on data processing and the provision of information to the business. Viewing it from right to left, the focus is on business results, the actions and knowledge required to achieve those results. The BSC identifies the information required to measure performance against the business objectives.

In the literature the IT-BSC is discussed on the one hand for an IT department as a functional unit inside a corporation (cf. [GrBr98]) and on the other hand for several IT investments (cf. [Jone03]). The BSC for an IT department considers the IT function and infrastructure in a holistic view whereas the BSC for IT investments focuses its main attention to an isolated system without evaluating the rest of IT infrastructure. For the following consideration a holistic view is used.

 

The perspectives of the original BSC were developed for SBUs. The external oriented perspectives finance and customer consider objectives and requirements for shareholders like profitability, growth, economic stability and for customers value-added. The internal oriented perspectives learning and growth and business processes present the critical processes that are important for the external goals and the potentials that are necessary for future business success.

This structure as a basic principle makes sense, but it has to be adapted for the specific characteristics of an IT department.

 

Whether part of a traditional or new firm, IT must balance cost, quality, agility and innovation when executing strategy as presented in figure 3.2.

 

Figure 3.2 IT-Balance (own illustration, according to [Gold02])

 

The main difference to SBUs lies in the fact that IT departments operate without direct relationship to external markets. This situation demands an evaluation of IT benefits for corporate contribution. Thus the original finance perspective term is replaced by a corporate contribution perspective (cf. [GrBr98]). IT benefits have traditionally been measured by quite simple financial measures like the return on investment (ROI) or the payback period. The ROI is the ratio of average annual net benefits of a project and the invested amount of money. The payback period is a period of time that indicates how long an investor will have to wait for the project to repay its initial investment. These types of financial measures limit themselves to the financial benefits and do not incorporate values (cf. [GrBr98]). The pure financial focus of the original finance perspective is now aligned by critical measures that improve corporate performance using IT.

The original customer perspective identifies the customer and market segments in which the organisation has chosen to compete. These segments represent the sources that will deliver the revenue component of the corporation’s financial objectives. The IT department focuses its main attention to provide products and services for internal customers like SBUs, processes or other SSUs and if necessary to external customers. But normally the customer of the SBUs is not the same customer of the IT department. Even though, in parts, IT products and services are part and parcel of company’s products and services, the SBUs decide on the information elements perceived by the customer thus the IT department is not directly responsible. This gap tends to result in a problem that is illustrated in figure 3.3.

 

Figure 3.3 the great divide (cf. [Gold02])

It is important to take notice of the aspect that customer and user are not the same persons. By using BSC in SBUs it is generally agreed that a customer is able to asses the benefit of a product or service and therefore he makes a buying decision. It is only important for the company to achieve high customer satisfaction whether the benefit is realised for the customer or not. The IT department should not only achieve high user satisfaction, but also maximize the strategic alignment of IT department objectives to corporate objectives. To participate in strategy, IT must first assure stakeholders that they are getting IT services at competitive cost with high quality. This competency is eliminating dissatisfiers, but once established the IT department can seek to understand and participate in realising business strategies (cf. [Gold02]). The first step to enabling strategy-focused IT is to understand current conditions in IT and its relationship with the corporation as illustrated in figure 3.4.

 

Figure 3.4 Conditions in IT organisation (cf. [Gold02])

 

The internal process perspective represents the most important value-added processes. For the BSC in SBUs Kaplan and Norton differentiate several aspects, depending on a basic strategy that can be chosen between operational excellence, customer retention or product leadership (cf. [TrWi95]). Companies that focus their strategy on product leadership concentrate on the innovation process. Those that embark on customer retention strategy should concentrate on customer management processes. Others that embark operational excellence strategy should concentrate their resources on aspiring to more efficient processes.

IT units can excel in these fields:

 

·        by solutions leadership, to enable innovative business models

·        by intensive business unit alliance with the SBUs, to support the business processes

·        by efficient products and services processes, to represent a reliable and low priced supplier

 

A special feature in the IT department is the strong providing of external products and services that is called outsourcing. IT units have to select an optimal outsourcing level and to ensure quality of products and services.

 

The learning and growth perspective establishes the basis for future demands. The “business enabler” can be classified in three categories: availability of strategic competencies, the use of strategic technologies inside the IT department and climate for action. IT units have to excel at those categories and additionally search for other sources with future potential like talented staff, preparing the applications portfolio in particular attention to outsourcing and putting effort into researching new emerging technologies. Thus the original learning and growth perspective has a too close view. A better name for this perspective in a generic model can be “potential perspective” (cf. [Blom02], p. 257).

 

The generic IT-BSC will have been structured into the four perspectives corporate contribution, customers, internal processes and potential. It is supposed that those perspectives cover the most important parts of strategic alignment for many IT departments, but is possible that for some companies other or more aspects play a prominent role.

 

3.2         Classification of other concepts

There are different designs for an IT-BSC possible. In the literature many concepts are presented and discussed that differentiate in number, term or profile. The perspectives can be classified (cf. [Boeh03]) into four categories to work out the fundamental differences:

 

• perspectives whose concept can be attributed to the original BSC of Kaplan and Norton and only differ in their term are “financial index” (cf. [GrWP98]) for the financial perspective, “user perspective” (cf. [GrBr98]), “customer delivery” (cf. [GrWP98]) for the customer perspective, “internal perspective” (cf. [GrWP98]), “business process” (cf. [GrWP98]), “operational excellence” (cf. [GrBr98]) for the internal process perspective, “potential perspective” (cf. [Blom02], p.257), “business development” (cf. [Kuet02]) and “future orientation” (cf. [GrBr98]) for the learning and growth perspective.
• perspectives whose concept points out a prominent strategic role often related to the learning and growth perspective are “people perspective” (cf. [Reo03], p. 6), “employees perspective, innovation perspective and supplier perspective” (cf. [Kuet02]), “security perspective” and “quality index and productivity index” (cf. [GrWP98]) for the internal process perspective.
• perspectives that see the company from a different angle are “corporate contribution” (cf. [GrBr98]) and “business value” (cf. [Mart99]). Those perspectives separate the financial perspective into “Control of IT expenses”, “Sell to third parties”, “Business value of new IT projects” and “Business value of the IT function”.
• perspectives that expand the standard perspectives with critical success factors are “project perspective” (cf. [Rose01]) for the implementation of large IT-Systems with measures for time, costs and quality and an “initiation perspective” (cf. [FrSc02]) for a BSC roll-out.

 

The variety of conceptions demonstrates that there cannot be the one IT-BSC. It differs by company and selected strategy. The presented generic IT-BSC has to be modified or expanded if necessary.

 

3.3         Perspectives of a generic IT-Balanced Scorecard

To substantiate the strategy map template that is illustrated in figure 3.5, general objectives are specified in the following chapters.

 

Figure 3.5 Strategy map template for an IT-BSC (own illustration, according to [Kapl03])

 

3.3.1        Corporate Contribution perspective

The question is: “How can we exploit the achievement potential of IT, obtain more business contribution and improve business value for the corporation?” Thus it makes sense to distinguish two kinds of IT evaluation: the objectives are growth or rather effectiveness and productivity.

"Control of IT expenses" is definitely focused on short-term evaluations and is assigned to productivity. "Business value of new IT projects" and "Business value of the IT function" require a more prolonged time frame and is assigned to effectiveness (cf. [GrBr98]).

To improve business value of the IT function or rather growth on the one hand, the IT has to achieve results in improving strategic success factors and on the other hand IT has to control its expenses, because growth can only be achieved when there are enough resources available for investments and a positive cost-value ratio exists.

Possible measures for growth are: share of turnover and share of revenue. The comparison to other companies in the industry may give useful indications. But these hints have to be interpreted with care: higher or lower IT expenses may be caused by company-specific reasons (cf. [GrBr98]). Possible measures for productivity are nominal/actual value comparison and budget status (cf. [Blom02], p. 84).

3.3.2        Customer perspective

The IT financial measures are similar across most companies; however, the customer perspective represents a key opportunity for the IT organisation to differentiate itself. By placing the user at the heart of the IT strategy and clearly articulating the value proposition it delivers, IT can begin the process of establishing competency and credibility. When developing the customer measures, management needs to push beyond the usual customer satisfaction survey.

Thus the question is: “How should we appear to our customers to support them by their tasks at optimum and be their preferred supplier?” The IT department delivers, apart from small third-party business with external customers, in contrast to SBUs no external markets. In dependency of its IT product portfolio it can be possible to sell products and services to third parties or to link-up the own supply chain to partners.

The products and services of the IT department have to fit the customer needs to achieve growth of the IT. Possible strategic objectives in this perspective are: to receive high customer satisfaction, to improve service level agreements (SLAs), demonstrate competitive costs, deliver quality service, to do the right things at the right time and to achieve business unit strategies. The needs of internal users, partners and external customers may differ, thus the customer perspective can be differentiated into partners, users and external customers.

Possible measures for this perspective are: levels of customer satisfaction surveys, numbers of SLAs exceeded and the percentage of costs-to-revenues (cf. [Blom02], p. 263), image, reputation, lost orders, customer loyalty, market share and customer profitability (cf. [Blom02], p. 84).

 

3.3.3        Internal Process perspective

The objectives for the internal process perspective can be derived from the question: “To satisfy our customers, users, partners and shareholders, at what business processes must we excel?” To support the objectives of corporate contribution and customer perspective the IT department has to excel at “operational excellence”, “business unit alliance”, “solutions leadership” and “outsourcing”.

 

• The Operational excellence category contains all objectives for operative processes that are necessary for optimising installation and operations of infrastructure, like to standardise platforms and architectures, to realise scale economies and to manage service quality.
• The category Business unit alliance defines objectives for strategic IT alignment to the corporation to understand business unit strategies, to effectively support users by delivering on schedule and to improve business unit productivity in the long run.
• Solutions leadership focuses on objectives of processes to understand emerging technology applications and to propose and deliver enabling solutions to enter new markets.
• The outsourcing category contains all objectives that are concerned with external services. On the one hand these are objectives that aspire to one’s own optimal vertical range of manufacturing and on the other hand these are objectives that coordinate those.

 

Possible drivers for the internal process perspective are: low complaint quotient or reclamation rate, low mean-time-to-repair, low time-to-market, good product image, identified customer requests and ideas, high project-success-rate, high degree to which the ideas can be realised / implemented, low aftercare operations expenses, high supplier satisfaction, high IT department satisfaction with suppliers, adequate share of revenue of supply chain partners, low quality defects and an adequate rate of vertical range of manufacturing (cf. [Blom02], p. 84), but also responsiveness and IT-security aspects amongst other things to adapt and control rules and regulations of the “Corporate Sector Supervision and Transparency Act” (KonTraG) or the risk aligned return on equity of outside capital in the context of “Basel II” that are required by law (cf. [Jone03], p. 3).

 

3.3.4        Potential perspective

The potential perspective set the stage for these requirements that are necessary for an effective and efficient IT department. It represents both a challenge and an opportunity for IT. It determines whether or not the IT organisation will have the necessary talent, infrastructure, and culture required to make the transformation. Without the right talented people, necessary infrastructure, and climate for action, the IT organisation will not be able to attain the operational excellence required to drive customer satisfaction that is necessary to deliver business value. It can be distinguished between “Human Resources”, “Skills”, “Information Systems”, “Culture of Innovation” and “Technology”.

 

• The category “Human Resources” contains objectives with focus on attracting and retaining talented people for the IT department and career development.
• The “Skills” category concern objectives with focus on retaining skills and sustaining skills in enabling technologies.
• The “Culture of Innovation” category identifies objectives with main attention to organisational structure of the IT department and incentive systems that promote an activity-based climate.
• The “Information Systems” category attends to objectives that concern on shared information systems inside the IT department that have an influence on effectiveness and efficiency.
• “Technology” focuses on objectives that help to research and identify economic potentials of future technologies and effective development.

 

Possible drivers for this perspective are: ideas generated on further training, number or growth of suggestions for improvement, premium volume of suggestions for improvement, certifications, capacity for teamwork, employee satisfaction, productivity, company affiliation, low fluctuation rate or low incidence rate (cf. [Blom02], p. 84).

“The ability to deliver high quality IT services within 3 to 5 years has to be prepared today. IT has to assess future trends and anticipate them. The fact that unanticipated evaluations can probably be dealt with through extensive external (often high priced) support can be of some comfort” (cf. [GrBr98]).

 

4           Conclusions

In this paperwork the original BSC was cascaded into a generic framework for the IT department. Four perspectives were identified and supplied with adequate measures and drivers: corporate contribution, customer, internal process and potential of IT. The suggested framework is a strategic management tool that enables management to follow up the measures and to drive performance, based on the goals that were set and agreed upon in advance. Measurement is a prerequisite to management, because “if you can’t measure it, you can’t manage it” (cf. [KaNo96b], p. 21).

The asked question of the top management “What is the value of our investment in IT?” at the beginning of this paperwork cannot be directly answered by using the IT-BSC, but it enables IT managers to communicate a unique strategy for the IT and to inspire managers and employees to make decisions and allocate time and resources consistent with stated objectives of the IT fuction, SBUs and the entire corporation (cf. [Gold02]). Some of the needed measures may already be available, so the total cost of implementing can be lower than expected, but the installation and maintenance of the BSC is difficult and requires substantial means that are not suggested here in detail because of few and unconvincingly literature (cf. [Basc01]).  In short, the installation has to be integrated for a strategy-focused organisation in a long-term change management process.

Kaplan and Norton (cf. [KaNo96b]) accentuate the need for three principles that have to be complied with in order to develop an IT-BSC:

 

• build in cause-and-effect relationships
• include sufficient performance drivers
• link to financial measures.

 

A strategy is a set of assumptions about cause and effect (cf. [KaNo96b], p. 30). If cause-and-effect relationships are not adequately built in a good mix of outcome measures and performance drivers, it will not translate and communicate the company's vision and strategy. Furthermore the BSC must retain a strong emphasis on financial outcomes (cf. [KaNo96b]).

The main difficulty is to identify and quantify valid measures for stated objectives. It is important to build in few individual strategic measures for every perspective and not diagnostic measures that exist in hundreds in controlling systems.

In regard to the conceptual formulation of this paperwork the presented generic IT-BSC is an example and does not represent a complete framework but a template that can be adapted, extended or modified by many IT organisations. Furthermore it would not have been productive to describe every possible strategy in detail.

It is a pity that there are so few case studies available to establish “best-practice” knowledge. Most of the organisations keep their best-practices, individual measures and in particular individual strategy maps, a secret to retain competitive advantages.

Therefore it is essential to research and understand the effectiveness of IT function and investments in more detail to develop improved performance measurement tools for the future.

 

 

 

 

 

 

 

 

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