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"Compuware Acquires Proxima Technology. In January 2007, Compuware acquired Proxima Technology. Compuware IT Service Management provides an end-to-end view of application performance while helping communicate the business value of IT services, and proactively identifying and resolving problems."
Source : Compuware
Reporting Value of IT Services with Balanced Scorecards
Balanced Scorecard (BSC) is also known as :
Performance Management Tool,
Performance Management ,
Balanced Scorecard Framework,
Strategic Management System,
Performance Measures,
Strategic Objectives,
Strategic Management,
Strategy Map,
Digital Dashboard,
Business Dashboard, ,
Enterprise Dashboard ,
Executive Dashboard,
Key performance Indicators,
Goal-Question-Metric,
Strategy Formulation,
Service Management Software,
Objectives Strategic Management.
Contents
- Management Summary
- Balanced Scorecard Overview
- Scorecards in IT Outsourcing
- Implementation Issues
- Getting the Right Metrics
- Process
- Finance
- User (Customer)
- Implementing Scorecards with Centauri
- Summary
Management Summary
"[Outsourcing] Deals tend to fail when the service levels are being met, but there is no alignment of the
scopes of work to a higher notion of business value."
Gartner Inc, "Sourcing Contract Flexibility: Managing Change without Renegotiations" October 2002
Today, IT Outsourcing (ITO) contracts are increasingly being awarded to Service Providers that are
able to articulate, on an ongoing basis, the value of their service in business terms meaningful to
their clients. Ideally, this expression of "value" extends as far as showing increased business
performance as a result of the ITO engagement, as well as how client business strategies are being
fulfilled. This move represents a significant step in the maturity of outsourcing from pure contract
management, to business relationships based on a partnership with the client. Accurately measuring
and reporting the business value of an ITO is the key to the success of this new partnership and the
topic of this white paper.
Balanced scorecards offer a solution to this requirement; they provide a value-based measurement
and reporting system, coupled with a control mechanism to ensure strategy is achieved. Developed
in the 1990s, this valuation approach converts value drivers - such as customer service,
innovation, operational efficiency, and financial performance - to a series of defined metrics.
Companies record and analyze these metrics to help determine if they are achieving their strategic
goals.
Balanced scorecards can be used to measure IT service quality, drive cost reduction, and improve
service quality in critical-to-quality areas. In addition, by translating IT service quality details into
"business value", they become part of the frontline service offering and a major competitive weapon
in the fight to win new business. Competitive edge is achieved in three key areas:
- Scorecards allow IT business value to be expressed in terms directly relevant to the
client's business strategy. A common understanding of value between the Service Provider
and the client is critical at re-bid time.
- As a defacto standard in corporate performance management, scorecards are likely to be
the client's tool of choice for business measurement. Aligning with this initiative enhances
partnering.
- Scorecards allow the Service Provider to demonstrate leadership and show innovation.
In addition to these benefits, since this business world exists in an electronic universe, it is
relatively easy to capture, analyze, and present this view.
This white paper discusses this opportunity and presents a strategy for achieving this.
Balanced Scorecard Overview
"Many management methodologies exist. The balanced scorecard is the most widely recognized and will
remain so at least until 2006."
Gartner Inc., "Drivers and Challenges of Corporate Performance Management" Jan 2004
A great deal is written about the value of measurement, but even knowing that it is necessary, it
appears to be something often overlooked. As a result, business decisions are made based on
empirical evidence that is either lacking or nebulous, to say the least. "Gut feel" and "intuition" are
very much the order of the day and any attempt to put in place a measurement system invariably
lead to cries of protest about freedom, trust, and creativity. While intuition has undoubtedly created
some of the world's most successful businesses, it has probably wreaked havoc on many more. So
the adage, "you can't improve what you don't measure," needs to be one's mantra in order to
become an effective decision maker.
A balanced scorecard is a measurement system for management that provides real insight into the
status of a business or some part of it. According to Gartner, it is the most widely recognized
business measurement system. Developed by Kaplan and Norton in the early 1990's, balanced
scorecards provide a control system that helps ensure the right balance between different and often
times conflicting, perspectives. For example, an insurance company may increase profitability by
offering incentives to Claims Assessors for taking a tough stance on payout, but will soon find
dissatisfaction among its clients that may lead to lost business. Scorecards help ensure this balance
and are a significant breakthrough over more traditional single dimension approaches that tend to
be based purely on expense management and business growth.
The perspectives of the balanced scorecard that need "harmonizing" are shown in Figure 1. This
may vary slightly depending on the application, but typically there are four perspectives:
- Financial measures provide insight into the bottom-line effectiveness of strategy
execution. Typical examples include expenses, profitability, and revenue growth.
- Customer perspective indicates the opinions and behaviour of our target customer (or
end user). This perspective normally includes measures such as customer satisfaction,
loyalty, and acquisition.
- Process perspective reports the effectiveness of the critical-to-quality (CTQ) processes.
The metrics here will be specific to the application, but typical indicators include process
sigma value, throughput, and rework.
- Innovation and learning perspective provide insight into the current capability of the
enabling infrastructure (typically worker skills). This is undoubtedly the hardest perspective
to enumerate because it is very "soft" in nature. Metrics here could include employee skills
index, employee satisfaction, and ease of access to information.
A balanced scorecard is typically implemented as a digital dashboard. An example of a dashboard
scorecard for an insurance company is shown in Figure 2. Balanced scorecards give purpose,
meaning, and scope to digital dashboards. Reading the dashboard immediately allows the user to
appreciate the balance between financial and non-financial metrics, internal versus external
perspectives, and results versus causes. It is a very powerful tool management device that allows
managers to make effective tactical and strategic decisions.
In addition to providing a meaningful business measurement system, scorecards also provide a tool
for strategic planning and execution by allowing an organization to translate vision into an actual
strategy. This is because the metrics shown in each perspective are the measures of progress
towards the strategy and metrics cannot be meaningfully specified without understanding what is
being measured. In business terms, the metrics are the key performance indicators (KPI) of the
critical success factors (CSF). To illustrate the link to strategy, consider the customer perspective.
The metrics presented will depend on the organization's value proposition to its clients. For
example, this could be a cost proposition based on operational excellence; an innovation proposition
based on leadership; or a very client-specific proposition based on client intimacy.
In IT outsourcing terms, these three different value propositions actually span the full gamut of the
outsourcing market: from cost oriented ISPs, through fully sourced engagements, to "frontier"
projects that create new business processes and business lines for their clients. Carefully selecting
the right value proposition (though not necessarily one from this list) and the metrics that show
effectiveness is key to the scorecard approach. Getting this wrong undermines opportunity. For
example, for a cost sensitive ISP, choosing metrics that measure intimacy with the client will
present a rather distorted view of business status. Consequently, it is for this reason that no "out of
the box" scorecard solution will exist for an organization.
Scorecards For IT Service Providers
Balanced scorecards are very relevant to IT service-level management. Not only is this data
intensive and in need of unscrambling, the IT universe is an electronic one in which vast amounts of
data can easily be captured and analyzed to establish true meaning. Furthermore, Service Providers
not only need tools to improve service quality and reduce costs, they also need tools to articulate
their value in terms meaningful to their clients. Finally, clients of the outsourced service need
something for governance that allows them to fully understand where their investment is paying off.
What better than to use the defacto management measurement system for this purpose?
A scorecard implementation takes the "less is more" adage to its logical conclusion to provide a
picture of service quality that is instantly accessible to all participants in the service delivery
process. From the technicians operating the service, through Client Executives accountable for it, to
the clients who are the ultimate beneficiaries, everyone has a common understanding of value. Of
course, each participant will have a dashboard specific to his or her responsibilities since the
scorecard implementation will cascade throughout all levels of management. This is illustrated in
Figure 3.
At the top level sits the Client Delivery Executive accountable for the service. This view - or a
slightly delayed version of it - can be shared with the client representatives that govern the
relationship. At this level interest focuses on the business value of IT and the impact of any failure
or, ideally, some service improvement activity. Achieving this view requires alignment between IT
services and the business processes they support. This allows IT service quality to be analyzed in
the context of the resultant effect to the business. The metrics chosen at this level also need to
reflect the business strategies of the client in order to show how IT contributes to these goals. With
this in mind, client-side scorecard users may include business process owners who are responsible
for the IT-dependant business processes and need to understand how IT affects business service at
any given moment. Providing dashboards to these users is perhaps going beyond what is expected
to be delivered, but this is certainly a catalyst for business partnering with the client - or can be
provided as a fee-based service. Proposing this in a pre-sales situation will undoubtedly give a
competitive edge.
The next level in the hierarchy is occupied by Service Delivery Executives responsible for the overall
service being delivered. This part of the scorecard is concerned with reporting SLA compliance.
Users here must understand the effect of IT service quality on the overall engagement and initiate
service improvement activities as appropriate. This view also requires IT services to be aligned with
at least the critical client business processes in order to sensibly prioritize and direct the service
provisioning task.
At the lowest level in the hierarchy, although no less a critical role, are the technicians responsible
for the constituent parts of the service; for example, the Database Administrators and Systems
Administrations. The view taken here is to clearly understand the root cause of any problem.
Implementing SLM Scorecards
Implementing a balanced scorecard breaks down into two key areas: organizational and technical.
Undoubtedly, the trickiest part is the organizational (or cultural) aspects, although the extent of this
challenge will largely depend on the maturity level of the organization. Factors such as having a
clearly articulated business strategy, well-defined internal processes, a corporate quality
management standard, and policies on customer service will fast path implementation. When this is
the case, effort is focused exclusively on identifying those performance indicators that show the
progress towards strategy and not in defining strategy itself. Organizational issues include getting
management buy-in, identifying the right metrics, getting buy-in at all levels, and working the plan
through to completion - all of which are potentially fraught with challenges and problems.
Implementing a balanced scorecard from a technical perspective is more straightforward and
consists of putting in place technology to retrieve data, convert it to a common format, filter out
irrelevant details, aggregate data to form a more meaningful view, display metrics on a digital
dashboard, and alert users to potential problems and exceptions. At the end of the day, however,
implementing a balanced scorecard boils down to two key tasks:
What are the metrics AND how are they retrieved?
The caveat, of course, is that strategy is inferred from the metrics and it is known what the strategy
is.
Getting the Right Metrics
Process
In an SLM scorecard, the internal process perspective shows how effective the service delivery
process is. Well-defined candidates for this process are the IT Infrastructure Library (ITIL) Service
Delivery and Service Support modules. Although this process needs to be tailored to suit the specific
implementation - and that is no easy task - it does provide an internal process whose
effectiveness can be measured and displayed on the scorecard. Of course, implementing ITIL in
order to satisfy the requirements of a scorecard somewhat misses the point of ITIL, but
organizations that have a well-defined process (such as ITIL) certainly have a head start, as do
organizations that take continuous improvement seriously and have standardized on a quality
management process - such as Six Sigma. This is because quality management standards provide
the recipe for measuring the effectiveness of process execution and its "delivered product".
Furthermore, these quality management methods identify adverse waste and report this in
meaningful cost-to-the-business terms. For the organization using these quality management
processes, the balanced scorecard simply provides a placeholder for metrics that are already
available, such as process sigma and cost of poor quality.
Although it somewhat defeats the purpose of the exercise to propose pre-canned metrics, metrics
usually contained in the process perspective include: performance to SLAs, throughput, availability,
capacity forecasts, accuracy of capacity forecasts, incident recovery, mean time to fix (MTF),and
mean time between failure (MTBF).
Finance
In order of ease of implementation, probably the next perspective is that of finance, as there
already exists an abundance of well-defined and well-policed metrics. Although fiscal matters are
generally well known to upper management, it is a concept that rank and file employees may have
little exposure to. Since this is the harshest of all realities, it can only be a positive that it becomes
a factor in routine decision making - particularly since this relates directly to the scorecard user's
area of responsibility. For example, a DBA aware of the cost of poor quality of a poorly running
database is more likely to direct attention to this, even though a service may not actually be in
breach. Another pertinent aspect of the financial perspective (at least to longer term planning) is
that of capitalization: that is, how many resources are being consumed to provide a service. While
over-capitalization cannot be addressed overnight, a downward trend provides a good indicator of
cost savings.
Candidate metrics for the finance perspective include: billing, consumption, performance to budget,
savings, COPQ, penalty payments, asset depreciation costs, ROI, and profitability (by
user/customer).
User (Customer)
The opinions of the end-user customer are significant and often times a perception of reality can
carry more weight than actual events. Thus, it makes sense to capture and understand this
viewpoint. This is particularly true for a Service Provider since - as an external entity to the
business -it all too often becomes the scapegoat for any problem that arises. Understanding
exactly who is the "customer" is key to an effective scorecard. At the service level, this will include
metrics about the end users of the service (or customers). At the higher level, for the Client
Delivery Executive responsible for service, this view will incorporate metrics about key decision
makers on the client side - basically the people that need to be onboard.
Measuring the user perspective is not straightforward, but voice of the customer (VOC) is a
technique that can be deployed to great effect. VOC is basically a survey, but with advances in
technology, can be deployed on a corporate intranet, kiosk style. Apart from measuring user
perception, VOC becomes a huge marketing exercise: when users express their opinion, they feel
part of the process - that is, providing someone actually listens..
Innovation and Learning
Of all the perspectives on the scorecard, probably the most troublesome is that of innovation and
learning. This perspective describes capability of achieving the required results in the other
perspectives. This boils down to the workers' skill set , their effectiveness, and the capability of the
infrastructure to allow them to execute the internal processes to create happy customers and
achieve the desired profitability and revenue goals. This perspective is more easily understood with
example metrics, which could include: rewards & recognition, classes taken, lateral moves,
teamwork, "Corporate Citizen", upgrade activity, efficiency, and so on.
Centauri and Balanced Scorecards
Centauri Business Service Manager provides a solution for implementing large-scale balanced
scorecard applications. Centauri spans both IT service level management (SLM) and business
activity monitoring (BAM) scenarios to allow IT-oriented scorecards to sit side-by-side with
traditional business scorecards. Centauri provides the necessary capabilities to retrieve, translate,
filter, aggregate data, and display all of this - in real-time - through a web-browser interface. The
Centauri balanced scorecard appears as a simple representation, although it actually hides a
massive behind-the-scenes data collection and analysis operation, which translates raw data into
value statements.
The data that determines the state of the business service will have many sources and typically
includes:
- Event and performance data gathered from all networked systems management (NSM)
tools that are monitoring the system components (i.e., servers, databases, network
connections).
- Operational performance indicators gathered from the applications themselves; for
example, the number of processed insurance claims.
- Other sources, such as seasonal buying patterns of customers gathered from a data
warehouse or data provided by a research agency.
This gathered data is correlated and then presented on the scorecard as a convenient reference
point. For SLM dashboards, raw data about the IT components is correlated to show the overall
service of critical-to-quality services. This accounts for the fact that an IT service is comprised of
many components - databases, network connections, web-servers, and so on. Only when all of
these components operate in harmony can the service be satisfactory. In addition to real-time data
about current service levels, the dashboard also contains historic information about service
breaches. If a breach occurs within an application, the dashboard shows the history of the "failure
mode" causing the service breach, how the IT Department handled the problem, and the estimated
cost to the business.
Although a digital dashboard provides a valuable means of communicating IT application service
levels with operational business managers, its value is greatly increased when it is part of an overall
service improvement program that allows practitioners to measure service, identify problem areas,
and help find the best way of removing defects from an IT service - defects that currently inhibit
business success.
When armed with the dashboard, operational business managers are equipped to deal with both the
cause and effect of IT problems and are in control of the business processes for which they are
responsible. Clearly, the value of the dashboard increases with the dependence a business process
has on IT, but in today's modern organizations most, if not all, business processees are supported
by IT.
Summary
Balanced scorecards are garnering much attention in the business community as they provide a
more insightful view of business progress. They are also strikingly relevant to IT service level
management: not only do balanced scorecards translate technical metrics into something more
value oriented, they also capitalize on a world that exists in an electronic universe where it is easy
to capture, analyze, and present this view. Outsourcers would be remiss to not consider balanced
scorecards in scenarios where it is necessary to communicate quality of IT service information with
business people. That is, rather than drag users into the IT world, use of the scorecard to
communicate in a language that is appropriate to business sponsors facilitates this relationship. This
is critical in any outsourcing scenario where the ultimate "decision maker" has no motivation to
become IT literate.
About Proxima Technology
Proxima Technology, Inc. provides software and services to improve
business service and accountability through service-level measurement,
reporting, and problem notification in distributed computing environments.
www.proxima-tech.com
Telephone
Australia 02 9458 1700
Germany 040 32005-405
United Kingdom 0870 870 0732
United States 720 946 7200
©1998-2003 Proxima Technology, Inc., Centauri, and Centauri
Business Service Manager are trademarks of Proxima Technology.
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