Balanced Scorecard within IS context

10 Feb

Do IS/IT investments contribute to business performance?  Brynjolfsson, E and Hitt, L.M. reviewed  the evidence on how investments in IT are linked to higher productivity and organizational transformation, with studies they conducted at firm level. They argued that value can be brought through organizational investments such as business processes and work practices and these investments enable productivity increase by reducing costs and also by enabling firms to their increase output quality in the form of new products or in intangible aspects of existing products like convenience, timeliness, quality, and variety. They argued that there are contributions from IS/IT investments but these they are not well captured by traditional macroeconomic measurement approaches. So they concluded that IS/IT investment contributes to business performance from their research but the measurement approach an organisation chooses matters.

Other authors  Martinsons, M. et al. also mentioned that how we measure productivity and profit matters. The fact that many investments in IT provide intangible benefits i.e. the ones that resist traditional measurement techniques.  The full potential of their improvements are not being realized.

The authors suggested that Kaplan and Norton’s Balanced Scorecard (BSC) approach can be modified to address the issue. The BSC has been developed as a way to both communicate business strategy, as well as direct attention to drivers of financial success. The authors propose that the BSC can be revised so that it becomes a useful way to measure IT project success.

They modified the original BSC to fit within an IS context. The revised scorecard framework illustrated below provides a graphic view of their modifications.

Capture

Adapted from Martinsons, Davison & Tse Fig 2 P.77

The four new perspectives identified include: user orientation, business value, internal process, and future readiness

  • The user orientation perspective is an end-users’ view and seeks to develop an on-going relationship with end-users (customers).
  • The business value perspective is management’s view. This perspective is concerned about the contribution of IS to the entire organization. It also has a focus on cost control and establishing a continuing relationship with management.
  • The internal processes perspective is an operations-based view. Its objective centre’s on efficiency and effective management of issues.
  • The future readiness view is similar to the learning and growth perspective. It emphasizes innovation and learning. Objectives focus on upgrading hardware and software, updating IT application, and build IS skills through employee training

They recommended the following steps in building a balanced IS scorecard

The 7 steps involved with building a balanced IS scorecard includes:

  •   Introducing the BSC method to management
  • Collecting and analysing data on strategy, objective, and metrics
  • Defining objectives based on the four perspectives
  • Developing a preliminary BSC based on defined objectives and goals of the organisation
  • Soliciting comments and feedback
  • Achieving a consensus that it will be used in the organisation
  • Communicating the final BSC to all parties

According to them a well built balance scorecard will include an appropriate mix of outcome measures and performance drivers. They explained that cause and effect relationships should be well defined among the four perspectives. They also studied the implementation of the BSC approach in three Hong Kong companies and they identified three problems:

  1. No specific long-term objectives
  2. No identification of cause and effect
  3. No communication of the BSC rationale and contents

Finally, they concluded that successful implementation requires communication of explicit cause and effect relationships because this communication was non-evident in the case studies. They also requested for more research to be done on  BSC implementation  in an IS  context.

In my previous blogs i listed 8 steps by Plunkett, P.T. He also mentioned three things management should also consider for performance measurement to be useful to their organisation, they need to address the issues of organisational maturity, accountability and resources.

Balanced scorecard is still used by organisations today or even if they are not used, many organisations follow the principles of the balanced scorecard for developing their performance measures.

Various blogs on IS business performance have also mentioned  other frameworks available that can be used for determining  the contributions of IS investments to business performance.

References

Martinsons, M et.al (1999) The balanced scorecard: a foundation for the strategy management of  information systems.

Brynjolfsson, E and Hitt L.M(2000) Beyond Computation: Information Technology, Organizational Transformation and  Business Performance.

https://www.acquisition.gov/sevensteps/library/GSAeightsteps.pdf

              

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