Setting Targets for Your Scorecard Metrics

When managing your organization’s strategy with a framework like the Balanced Scorecard, perhaps the only thing more difficult than determining which measures—metrics, key performance indicators—to use to track progress is deciding what your targets for those measures should be.

If your scorecard is using metrics that you have used in the past, determining targets can be pretty simple. You can look at the trend in the metrics over the past few years (say, the past 3 years) and figure out what the growth rate was.  If it was 10% per year, would 12% for the upcoming year be a good stretch target? Or, are you happy to continue the current growth rate?  This should be pretty straightforward decision.

The problem a lot of organizations encounter is when they are introducing new measures that they have never tracked before.  How do they then determine good targets?  And, the problem is often compounded by the intention to use their scorecard to award incentive pay to executives, managers, and even staff.  Setting the wrong targets in this situation can be very dangerous if you aren’t sure what they should be.  Set a target too low and employees may be awarded a windfall. Set a target to high, no one earns a bonus, and employees get discouraged.

If you can help it, don’t use these new measures and targets to award incentive bonuses.  You don’t have to use every KPI on your scorecard for incentive pay. In fact, using too many can make the formula overly complicated and hard for employees to understand—keeping it simple and straightforward allows employees to have better line-of-sight from their work to the incentive formula.

However, if you have to use the new metrics, wait a year.  Use that year to test the metric, see what the data is telling you, and then set better targets using that historical data. 

This also helps with telling the story and explaining why picking the measure with the target isn’t arbitrary.  Leadership can say, “Last year was a good year and Measure A increased by X%.  We want this coming year to be even better so if we can work hard and increase Measure A by (X+3)%, everybody in the company’s bonus will go up by 20%.”  After all, you are your best benchmark.

Getting Your City Council and Staff Leaders on the Same Strategic Page

Working in any government organization where there is a combination of elected (or appointed) leaders and career/staff leaders can be difficult. In the Federal context there can be the tension between political appointees who serve the current administration (and voters’ most recent whim) and career employee-leaders who tend to have the long view of an agency’s mission.

The same can be true in city government where an elected board or city council and city staff must work together to help a municipality fulfill its mission. On the one hand, each council or board member may serve a separate constituency with distinct wants and needs. On the other hand, city staff are (hopefully) engaged in execution of a long-term city strategy that may have been put in place before the current council members were in office and have a time frame that will outlast their terms.

So, you could have multiple council members with distinct goals and then city staff with a whole other set of goals or objectives.  How does leadership make sense of this and get everybody aligned?

Try not to perpetuate an ‘us vs. them’ mentality

I have heard some people suggest that the facilitator (whether it is an insider or an outside consultant) meet with each group separately to see what their strategic priorities are and then bring the groups together to reach consensus.  However, this reinforces the “us vs. them” mentality by perpetuating the belief that each group has their own separate, and incompatible, strategic focus areas.

Instead, I find it more effective to interview each council member and staff leader on an individual basis.  This immediately breaks up the two groups of “council” and “staff leadership.”  Rather, by treating every person as a distinct individual, it enables the facilitator to find commonalities across the entire population of participants and focus on areas of consensus as “quick wins” – or strategic goals that the whole group agrees to.

Perfect is the enemy of ‘good enough’

In my experience, this tends to be about 70% of the organization’s strategic goals, and there is really only disagreement over about 30%.  The key here is that if the organization’s leaders agree to 70% of what they need to do, that’s a lot, and there is a lot of value if they start executing on those goals with strategic initiatives.  In the meantime, they can work on the other 30% and it does not have to be a barrier to getting anything done at all.

When leadership focuses on areas of consensus and realize they agree on most things, the areas of disagreement seem a lot smaller and a lot more manageable.  I often tell clients in this situation, “Perfect is the enemy of good enough.” It is more effective to start executing on some strategic goals or objectives while working on the remaining ones than to wait until everything is perfect (which rarely happens) before executing at all.

Executing the Balanced Scorecard in Your Organization: Should You Invest in BSC Training?

So, you want to use the Balanced Scorecard (BSC) as a framework to help your organization execute its strategy.  Should you invest in BSC training courses for staff?

Implementing the BSC is a change initiative that requires organizational change management practices accompanying its rollout.  You can pay for training for your staff and have them sit through a three-day course in a classroom and they will probably be able to pass a test to get some sort of certification, but will they actually know how to implement the BSC?

A simple analogy would be medical training.  Doctors do not just go to medical school, take a test, and then go straight into practice, they have to intern and go through a residency before they get their medical license.

The same goes for implementing business processes like the BSC.  You have to learn by doing.  That is why we use the “train the trainer” and method when helping organizations implement a BSC.  There are consultants out there who will look at your strategy, talk to a few leaders in your organization, and then give you a Balanced Scorecard.  Is that really your scorecard? Because it is not a recipe for success.

You have to work with people throughout the organization to create the scorecard in order to build ownership and buy-in to the BSC.  The individuals in the organization need to feel that they participated in developing the scorecard and it is “theirs” rather than something that was thrust upon them.

In addition, the process of working cross-functionally as well as vertically throughout the organization to build the scorecard helps to align people around the strategy and to understand how they fit into your organization’s strategic execution. 

When team members roll up their sleeves to do the work to build the scorecard, they understand how the strategic measures will help incentivize the right behavior while enabling the organization to track progress and strategic initiatives will ensure the right the proper resources are allocated to strategic projects.  These are things that you can’t learn in a training course.

Finding Good Strategic Measures for Your Legal and Compliance Scorecards

A lot of organizations I work with to develop scorecard measures struggle identifying the right measures for their legal and compliance departments.  When you are dealing with regulatory requirements—things your organization has to do—it can be difficult to come up with meaningful measures.

They argue, convincingly, that it does not make sense to track the percentage of audits completed or identified risks for which a mitigation plan has been developed when these are almost invariably 100% all of the time. What’s the value in that?

These are not outcome measures, but outputs—things that get done.  Outcomes in the legal and compliance areas are even harder to measures because they usually amount to measuring a negative: If you do everything right, you prevent a bad situation from arising.  It’s like how the U.S. Department of Homeland Security every once in a while, has to say, “We prevented X number of terrorist attacks in the past Y years.”

So, what should you measure?  My suggestion is to look at those activities you always do and ask: Can we do it better or faster?  Faster is much easier to measure because you are looking at cycle times and the data should be easy to gather.  Are we doing 100% of audits within the required timeframe?  Are we completing them within a reasonable amount of time—from start to finish?

“Better” is a little bit harder, but we may be able to track data about mistakes being made or “re-work.” Or, maybe we even survey our “customers” and they can tell us how they feel about the process.

Using Scorecard Metrics for Executive Variable Compensation

Some not uncommon questions I get from clients are: How should I use my scorecard metrics to determine variable compensation? And if so, which ones?

The easy answer is, “No, you should not, if you are just starting to use a scorecard in your organization.”

However, if your organization has been using some kind of metrics-based variable compensation for a while, it makes sense to align it to the measures in your scorecard.  If you don’t align the variable compensation metrics to the scorecard, you run into a big problem of having two separate measurement systems for the organization, which isn’t a good look if executives bonuses depend on metrics that are different from those used to measure the organization as a whole.

Therefore, you need to use the scorecard metrics and your first choice should be the ones you used in the past, if they are on the scorecard.  If not, choose metrics for which you have a consistent history. If you have baseline data and you have a pretty good idea of what thresholds, targets, and stretch targets are within reach, you will have stability and consistency using those metrics.

On the other hand, if you were to use new metrics that you just identified, you may not be sure what to expect in the future and this can cause a lot of angst and lead to unexpected results, which is exactly what you don’t want when tying variable compensation to the metrics.

So, to summarize: When tying variable compensation to scorecard metrics, if you are just implementing a scorecard for the first time, try to wait a year to see what results the scorecard metrics yield so you know what to expect.  If you can’t wait, try to tie it to metrics for which you have some history or a baseline to limit surprises.