Use a Balanced Scorecard to Measure Business Performance
“There were 5 exabytes of information created between the dawn of civilization through 2003, but that much information is now created every two days.”
Eric Schmidt, Executive Chairman at Google
A Game Changed
The future’s history books — which I’m guessing will only exist in some digital format — will undoubtedly chronicle the past 50 years as a nearly incomprehensible explosion in human knowledge.
The period from the late 1970s to now has been referred to by many names: The Computing Age, The Dawn of New Media, The Digital Age. No matter the name, modern society has crowned information as its king and as a result, the new battlefront for modern business is data and analytics.
No matter the industry, the consequence of losing the data war with competitors is incomplete (and/or bad and/or nonexistent) information informing critical decisions by executive leadership. Making matters worse, the new landscape has rendered many traditional organizational measures obsolete. In response, new tools and weapons for this new data war had to be forged.
Finding Balance in the Data Onslaught
In 1992, two esteemed professors at Harvard, Robert Kaplan and David Norton, saw the new paradigm and went to work developing just such a tool. It was called the balanced scorecard.
Time and perspective have shown the now-obvious shortfalls of measuring an organization in strictly financial terms. Even a century ago, the operations and strategies of most large American companies were far too dynamic to accurately assess with the same handful of pecuniary benchmarks.
Fast forward to now and the complexities of the modern age and it’s genuinely silly to think any single measure (or a handful of measures) could give a comprehensive picture of the overall health of an organization. We need balance. We need a more dynamic assessment of performance vs. objectives. We must consider the financial and the non-financial. We can achieve this through the scorecard.
Take Key Performance Indicators Beyond Finance
It’s noteworthy here to mention that entire college courses are devoted to the minutia of building Kaplan and Norton’s balanced scorecard. Lucky for us, it remains a relatively easy concept to explain at a high level. In a nutshell, it’s a simple framework in four easy parts: Financial, Customer, Internal, and Growth. For each, the task is simple: find the key performance indicators.
While there is no shortage of financial measures to use as KPIs, the other three areas might require a deeper dive.
Struggling to measure overall customer satisfaction? Take a look at what percentage of your widgets get returned. Trying to assess internal efficiency? One might look at the length of lead time between product design and going to market. Unsure about your company’s capacity to innovate? The examples are bountiful and the results are almost always transformative. One of my favorite clients of all time used to live by one mantra: a process examined is a process improved.
To this, I might also add that a process, upon examination, usually reveals how poorly company metrics accurately capture the success or failure of specific strategies. I liken it to focusing on a restaurant’s food servers to evaluate the efficiency of the cooks.
Proven Effectiveness
Now, speaking conceptually about the scorecard provides a great overview, but nothing better demonstrates its effectiveness than its real-world assimilation into the world’s biggest company, Apple.
For context, Apple had traditionally focused almost exclusively on its technologies building computers. Executive leadership was product-focused, and their measures of choice were the same contemporary gauges used by most other large global enterprises (ROI, gross margin, market share, etc).
The task of procuring feedback from outside the company had usually fallen on third parties like JD Power. Apple knew the limits of depending on someone else for such critical input and executives had come to realize that then-current measures were not capable of articulating the effectiveness of critical strategies. Leadership’s response was to adopt Kaplan and Norton’s balanced scorecard.
All four elements (Financial, Customer, Internal, and Growth) were considered by Apple executives. Going forward, financial measures would emphasize shareholder value; from the internal process perspective, core competencies; the Growth perspective, employee attitudes. And perhaps the most important change was an emphasis on the customer perspective through market share and customer satisfaction.
Apple no longer outsourced customer feedback. They developed specific surveys that sought to inform their future. From them, the computer builder realized their loyal but disparate customers were looking for similar things; user-friendly interfaces, more powerful software architectures, and better distribution systems — things that define what we now think of when we think about Apple.
Link Measures to Activities in a Dashboard
Finally, once an organization has undertaken the leadership responsibilities and heavy lifting of building its individualized scorecard, it would be short-sighted not to link those results and KPIs to a dynamic, powerful, and highly effective dashboard.
In my experience, dashboards are one of the best tools for first linking measures to activities, then activities to objectives, and finally objectives to performance. ZOHO is my favorite. It’s the best dashboard value out there. (And no, I’m not a paid spokesperson nor do I benefit in any way from this endorsement).
About the Author
Russ Gambrel, a finance & accounting consultant for Fahrenheit Advisors, is a CPA with more than 22 distinguished years of accounting, auditing, and information systems experience. He has spent the last ten years working with a who’s-who list of Virginia-based start-ups and large companies consulting extensively as both a fractional CFO and Controller. Prior to moving to Virginia, Russ tracked countless miles from his start in Silicon Valley to Washington, D.C., leading both small and large companies in their Sarbanes-Oxley compliance efforts. Before joining the private sector, Russ worked and lived in the European theater as a Budget Director with the DOD. Additionally, he is a former University accounting and finance instructor whose Master’s studies in Information Systems focused on relational database design.
CEOs see Opportunity in Downturn
Inflation. Slowing demand. Rising interest rates. Everyone is talking about a recession. Whether a recession happens or not, most CEOs are anxious about what the future holds for their businesses. This was the topic for ninety business owners at a recent VA Council of CEOs luncheon.
When these CEOs were asked, “Is a potential recession more of a threat or an opportunity for your business?”, almost two-thirds of them saw more opportunity. The Lewis Group’s John Lewis predicted that the stock market will turn around and go “to new highs,” citing the economy’s fundamental strength and historical trends. Many of these entrepreneurs said they felt more prepared this time, having survived the Great Recession. Three themes emerged from the discussion.
Survival of the Fittest
A number of CEOs said that it was time to “flush the system,” leaving flexible, well-prepared organizations with the advantage and effectively weeding out the competition. The fittest will have the opportunity to acquire talent, assets, and market share from weaker competitors. Some talked about the creativity that businesses experience when faced with challenging times. Others shared that now was an important time to focus on your organization’s mission and vision — and to communicate optimism for the future to employees and customers.
Cooling Talent Market
Could a downturn bring an end to the workforce crisis? Many of the CEOs said they expect the challenges in recruiting and retaining talent to ease. Those firms that focus on providing attractive work environments and growth opportunities for their people will have an advantage. Susie Fife of Red Orange Studios said she works hard to “make sure that [her] employees know that they are supported.”
New Growth
Several luncheon participants excitedly noted the opportunity for growth. Henry Clifford of Livewire said that some new services they created out of internal necessity “have proven successful and turned into industry-facing efforts.” Many of the CEOs said they looked forward to leveraging partnerships that might not have been possible in the past. And organizations with deeper pockets and the right talent in place are positioned to acquire other businesses and take market share.
Doug Moore with Fahrenheit Advisors started the luncheon conversation by quoting Andy Grove’s book title: “Only the Paranoid Survive.” The audience of CEOs, entrepreneurs, and business owners agreed. However, most in this audience were more focused on the opportunities to be found in disruption.
Do you see more threat or opportunity in the potential recession? Share your thoughts in the comments!
What is the Best Time to Join a CEO Roundtable?
7700 CEOs.
Over the last 22 years, I think I have met, spoken, texted, or emailed with 7700 CEOs. More than 1100 of them joined VACEOs and participated in a peer roundtable.
Not once, ever, have I had a member tell me, “Boy, I sure am glad I waited to join you!”
However, many times I have heard a CEO say, “I really wish I had done this sooner.”
So, what’s the best time for you to join a roundtable? “Now” is the short answer. Certainly, you need to be determined to commit to your roundtable peers with your presence at every meeting and with your full-on participation at those meetings.
Don’t have time, you say? You never will. No one has time. But you must do it if you want to grow yourself as a CEO and your business and its value.
Scot McRoberts helped found VA Council of CEOs in 2000, and has been it’s Executive Director since then.
Burnout Prevention for CEOs
Burnout is a real risk for CEOs whose bodies and minds are literally bombarded by stress, causing your brain function to go down as your blood pressure goes up. Stress and change are coming at us at a pace like no other time in our history — from COVID and the economy to our modern electronic lives and the pace of business — and CEOs are sitting squarely in the middle of the mayhem.
Combatting burnout is essential not only to your own personal physical and mental health but to the health of your business as well, because of your responsibility to lead it. One proven way to address burnout is through mindfulness. Yes, mindfulness. But before you dismiss the method as “fluff,” you need to understand that the science of mindfulness is as real as the science of stress.
VA Council of CEOs recently welcomed Dr. Teresa Babineau, a credentialed mindfulness and burnout expert who is a practicing physician and faculty member at University of Virginia School of Medicine, to our quarterly luncheon to explain the science behind mindfulness as a burnout buster and offer specific ways to put mindfulness into practice in our demanding daily lives. Whether you missed the event or need a helpful reminder of what you learned, we’ve captured the highlights for you here.
In a hurry? Scroll down to get to skip the science and find four ways to reduce stress and burnout.
THE SCIENCE OF STRESS AND MINDFULNESS
When you experience stress, your body releases cortisol, which is why it’s known as the stress hormone. In a stress response, cortisol kicks in and your body activates its “fight or flight” mode. To your brain, losing a major client or managing a supply chain snafu is just like our ancestors coming face to face with a saber-toothed tiger — your body’s stress response is the same. Your heart races as blood moves to support your critical organs, causing issues like muscle pain, headaches, constipation, and increased blood pressure and stomach acid. Sound familiar?
Our bodies react to stress and overload with physical symptoms — and so do our brains. When you experience burnout, you can’t think straight because your brain is literally shutting down. Your prefrontal cortex, one of the higher thinking parts of your brain, goes on strike because it’s exhausted by overload. Have you ever experienced “tip of the tongue” syndrome, when you just can’t remember a detail, a name, a word? That’s a symptom of prefrontal exhaustion. High stress leads to overload of our sympathetic nervous system, which, quite frankly, was not designed to be in the state of constant overload we experience today. To balance it out, we need to turn on our parasympathetic nervous system, which relaxes parts of our body after periods of stress. This is where mindfulness comes in. Mindfulness and meditation are scientifically proven to activate the parasympathetic nervous system and turn the prefrontal cortex back on, putting the body into “rest and digest” mode. Your heart rate comes down, your digestion gets the green light, and your brain returns to full function so you can think clearer, make better decisions, and even react better to the next stressful situation.
Kicking your parasympathetic nervous system into action is the scientific secret behind using mindfulness to combat burnout.
MINDFULNESS METHODS TO COMBAT BURNOUT
Luckily, it’s easy to get started putting mindfulness to work to combat stress and burnout. You don’t need weeks of training or even a half-hour block on your calendar. You just need a few minutes and a few simple techniques.
1. THE 3-MINUTE BREATHING SPACE: 1 In times of stress, give yourself 3 minutes to breathe. Get into a comfortable seated position and close your eyes, then focus on your breathing, how your breath feels going in and out of your body, even the sound it makes. Think about your body, like what your feet feel like on the floor or how the air feels on your skin. And keep breathing. If your mind wanders to challenges and to-dos, just bring it back to focus on your body and your breathing. After 3 minutes, get back to business. Bonus points: Making this a regular habit is a preemptive strike against stress and burnout.
2. TALK TO YOURSELF: Have a conversation with yourself, out loud, for 3 or 4 minutes every day. The key is to be respectful and compassionate to yourself. Talk through a challenge with the goal of finding a solution or closure. Explore an experience to learn more about what happened. The fact that you’re vocalizing the words adds another sense to the mix, boosting clarity by making you more aware and mindful. Try starting the conversation by saying to yourself “Let me tell you a story…” Stories have power beyond words because they cause your body to release oxytocin, the “feel good hormone.”
3. GOOD THINGS: 2 Each night before you go to sleep think of 3 good things that happened that day. Write them down, the act of which uniquely engages your brain and boosts your attention and mindfulness. Focusing on the good helps retrain your brain to find the positive instead of seeking the negative — which our brains have done for eons to protect our very survival. As the final step, reflect on why the good thing happened, and how you influenced or caused the good thing.
4. THERAPEUTIC WRITING: Get mindful about a situation by journaling about it. Journaling requires serious introspection and can lead to helping you identify solutions to challenges or making meaningful discoveries about yourself. Journaling is therapeutic and redemptive. It provides a path to change so you don’t keep repeating the same mistakes — which can obviously lead to more stress.
The Bottom line: Stress is here to stay, and the risk of burnout will always loom on your horizon unless you find ways to successfully address it. Make an investment in yourself to combat burnout and improve your clarity and your everyday effectiveness through mindfulness.
1 Created by Mark Williams, John Teasdale and Zindel Segal who created Mindfulness Based Cognitive therapy at the Oxford Mindfulness Center
2 This is the work of Dr. Martin Seligman and others so would need to mention that
CEOs’ Outlook Dims
The latest quarterly CEO Economic Outlook Survey conducted by the University of Richmond’s Robins School of Business and the Virginia Council of CEOs reflects lowered expectations for the next six months. More than 80% of CEOs cited inflation and labor shortages as inhibitors to growth. Read the full report.
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