Shared Service Metrics: Designing a scorecard that reflects the decision making needs of the shared service entity
Designing balanced scorecard measures for a Shared Service (SS) business model is slightly different than for a regular company. It’s not that the basic measures will be completely different, it’s more that there is a recognition that the business is different and it feels like there should be different measures. For this reason, many shared service companies have struggled with the ideal type and mix of measures. These dynamics are connected to the relationship and degree of separation with the parent companies and also by industry. I postulate that in most cases a few unique measures should be added from a standard scorecard, it’s more HOW the results are debriefed that makes the shared services scorecard unique.
Corporate metrics are used for several reasons, but it’s important to keep them focused on measuring the implementation of the strategy. On a more granular level, they will be used to measure other aspects of your business (such as output and quality of the work) but this is likely still part of your overall strategy as reflected through the long-term objectives of your client-related focus area. In an environment of accountability, metrics are used to generate behaviors so you need to choose them wisely. They need to be chosen in ways that completely define success for your organization or they will motivate the operational layers of the company in the wrong direction.
What makes a good measure is a different topic, one that I’d like to discuss on here soon, but I’ll sum this up by saying that you should choose based on what you are likely to make decisions on and avoid measures specifically for positioning or “nice to know” information. All of that aside, I believe the unique nature of the shared services balanced scorecard is to understand how the complex of measures indicate performance in both of your major arenas, 1) internal and 2) client. Most of the time, it benefits you to consider each focus area as a group, but in this case it warrants a discussion to ensure that your scorecard effectively measures the quality of the business model and self-investment processes.
Most measures don’t tell you the whole story individually. They should be considered as a complex. As with many industries, part of your scorecard will be internally focused, while part of it will be externally focused.
Most companies have some iteration of the following focus areas:
• People/learning/culture
• Client/growth
• Process/efficiency/capacity
• Financial performance
At this point, some people will be questioning how this is different than any other industry. Speaking as someone who has worked in the shared services industry for a number of years, I can say that the structure lends itself to a greater degree of scrutiny by the parent companies than a traditional business model affords. I am of the belief that human nature demands that we protect that which we’re responsible for and therefore shared services groups often enjoy less shielding at the executive table than internal departments do. The other dimension of this being that shared services teams are almost exclusively overhead.
Now to the answer: The difference is that shared service groups are created to generate a higher level of efficiency than is often demanded by the profit generating areas of the business. Because of this, it becomes critical that these departments manage their clients with the purpose of ensuring that the IDEAL mix and quality of internal investment and client delivery time/resources are in place. Because the resources for self-improvement (investment in the business model) are often limited, it is critical that this is done more effectively than your clients or parent companies do. You do this by paying attention to what the measures are telling you so that you truly understand the state of the business model. In a high pressure environment, making the right decisions are critical and wrong decisions about the business model create a greater degree of fallout than in a typical corporate environment.
After having said all of that – what are the dimensions to manage? Consider your measures through this lens and think about whether you have the right mix or not: 1) Is what we’re delivering to our clients ideal? This indicates quality of client interaction, output and timeliness. 2) What is the quality of the business model? This indicates whether we’re effectively using the internal investment / residual time and whether we have the ideal amount of residual time.
Regroup your measures from across all the focus areas into these 2 areas and reconsider your mix of measures. Have a good discussion about what measures fit into each group and whether there are any gaps. While you’re at it, talk about how your business is different than your parent companies and what differences should be reflects in how you run your business, and the resulting measures.
• Do they tell you what you need to know about how well you manage your own business?
• If you work your people harder than your clients do, what are you doing to compensate for that?
• Is there a clear correlation between what is agreed to in the service level agreements and the available FTE in your teams?
• What % of available FTE weeks are billed to external clients?
• When you consider your measures, are you missing any aspect of the information that might hold you back from confidently making a decision?
• Do you understand what the ideal mix of time spent internally and with clients is?
Is this whole commentary too simple and obvious? It could be. The bottom line in this arena is ensure that you are measuring the business model and resource requirements in a way that ensures realistic expectations are being placed on the shoulders of the shared services entity. Pay attention to the fact that you are different than every other “internal” department of the company. Treat your business as though you are externally focused, and manage your clients like a consultant.
Overhead is always the place where companies “restructure costs” but this can be done to the detriment of the business if someone isn’t keeping a close eye on the quality of the business model. This is where you come in.
Shared Service groups may well become the wave of the future if they are implemented in a sustainable way. I’d recommend keeping your measures in the existing focus areas, but incorporating this “business model” discussion and analysis into an annual planning forum with your senior staff.
Shared services planning
Different business models and management styles require different types of planning and output needs. If you find yourself newly managing a shared services company, recognize that this requires something different that you have done in the past.
Shared services models have some inherent opportunities that don’t exist with many other business models, but only if they’re implemented and managed correctly. The issues I’m going to address today are directed at new management of shared services divisions /companies that have been transitioned TO shared services, through the conversion of internal back-office teams. (as opposed to closing divisions and going with a new external provider)
Chances are that one of the greatest challenges you’ll have is transitioning to your new role. Along with the promise of the shared services value proposition, are some significant transition risks. Keep you eyes on these fries:
Client expectations change immediately
When someone is responsible for the quality of what you deliver, they defend and protect it. When this person is suddenly transitioned to what essentially feels like an external client, their expectations change. This isn’t a bad thing, it’s an opportunity to make things better, provided that you are expecting it. Change your thinking early and allow this change to impact your planning.
Communication is critical
Internal management and performance processes are often sufficient for organizations where a traditional business model is used. Outsourced services requires additional rigor to ensure that expectations on both sides of the table are clear. From day 1, treat your client as though you were an external consultant - service them with the level of detail and communication they should expect from a higher priced external vendor.
Take control of your own destiny
The tendency is to try to keep things the same as they were before. People prefer to try to maintain continuity and want to feel like they’re still part of the old structure. Give them some direction and show them where they’re moving - it will make the transition easier.
Most importantly: You need to have an operational delivery plan/proposal that is built from mutual engagement and is linked strongly to budget. Expectations will be more difficult to manage if you don’t have an agreement of what will be delivered, how often and the resources it will take to deliver on it. This is a significant undertaking in the first year but the work to maintain it will decrease after the initial implementation.
How does it integrate with strategic planning
You need to have a plan outside of your client plans. You need to have an identity and direction that your people engage with – piggybacking off your client direction too closely becomes more of a mistake the further you go out from implementation. Conduct your strategic planning earlier in the year to create the high level direction for your company and then drill down to the granular levels through the year. Connect your planning with your client plans to maintain relevance.
Getting all your ducks in a row
What % of your leaders see strategic planning as part of their jobs and as a result, really engage the process?
Development of strategic direction is only the first in a multi-staged process of seeing strategy through to fruition. The strategy has to be communicated to all levels of the company, it has to drive the priorities of the business units, the business units have to include this overall direction in their budgets and people have to be held accountable for their plans.
When communication breaks down at any level of the corporate hierarchy, or at any stage in the process, everyone and every subsequent step below that level will be crippled, including your people’s ability to align to corporate direction. Over time, this erodes their relevance to corporate direction. The dynamics in every organization are different and there are no silver bullets for making this happen in every culture, but what is common is this:
People need to understand:
1) Where your company is going (Long-term Direction)
2) How it intends to get there (Short-Term Initiatives)
3) What success looks like (Measures and Targets)
4) How we’re doing against our plan (Reporting)
This sounds elementary, and it is. We all need to take a good look at our own blind spots to determine how we can do this more effectively. As soon as you get real commitment from all levels of management, your company will be more effective.
Telling the story of your strategy
I’m sure all of us have heard or read a story from a really great author or story teller. You feel, hear and see the story, it’s like you’re there. Without that skill, it’s just a bunch of words. If you want people to get excited about where your business is moving, you need to show them where it is.
In order to help you make that happen, I thought I’d tackle 2 of the greatest unspoken misconceptions about strategy
1) People can implement strategy without you clearly articulating it
The people that work for you may not ask for the direction, it’s likely they operate in mild state of confusion or that their work is not as focused as it could be. Perhaps their work is focused, but it’s just not changing. Strategy is about change. If the leader isn’t leading, it doesn’t happen. This means that you are gradually becoming less relevant and environmental risks are slowly overtaking you.
The job of the leader is to help their people envision the future and then move the group toward capturing it. You must articulate the direction, which means you need a clear picture of what that is!
2) Telling people the direction is enough to make you a good leader
Implementing strategy isn’t easy and it isn’t a once a done activity. People avoid it because they don’t understand it. No one wants to admit that they need help or don’t have all the pieces. I’m just going to say it, you can’t blurt out direction in January and point the finger at your managers in December if you weren’t leading the charge between February and November. Delegation and accountability is a given, but this stuff doesn’t happen on its own.
Good leaders are still made up of those who lead. It’s a rare breed of person who has the ability to see the future, but it’s useless unless you take people there. Regular discussions that maintain focus and accountability are critical.
Now go write your own story about where your business is going and we’ll see you there!
Simple or complex planning processes
There are highly diverse opinions on what strategic planning methodologies are most effective. While the structure that houses the strategy is important, the larger issue is the quality of thinking and the consistency of understanding at all levels of the company. The latter of the 2 relates more to implementation, so I’ll leave that alone for the time being.
The question today is: Is it better to run a consistent and simple planning methodology across all divisions, allow management to plan as they please and manage only by the outcomes or run a highly customized and detailed planning process?
It is my opinion that organizations are “organic” to a large degree because they are just a collection of people and personalities. Because of this, “how things get done” has to be customized in order to suit. This is what challenges the idea of a cookie cutter approach to implementing a planning system. What worked well at one time in one company may not suit another company. Depending on the style and preferences of management, the preferred planning processes will vary. This being said, the information needs of the workforce will be equally diverse, hence the need to maintain some level of balance (between off-the-hip and highly detailed).
It is my experience that when organizations lack consistent strategic clarity, you have 2 priorities:
1) The executive needs to get clear on the direction and be able to communicate in a way that everyone can understand
2) Divisions and teams need to implement a planning system that is simple and consistent.
Simplicity provides the opportunity to get the program underway without confusing the company. Progressing from simple to complex supports a gradual learning curve at the management level and allows the company to progress without pushback. Consistency in the timing and format of strategic direction development across all divisions creates the opportunity for business units to share their plans in the same format and at the same time. This will help to facilitate better discussions at the senior management level around potential synergies and resource impact/constraints.
As the clarity around organizational direction increases, the complexity of the strategy should be a natural progression. Executive will recognize that existing frameworks lack the ability to say all that needs to be said and organize all of the elements that are at play in their discussions. This is your opportunity to increase the complexity. It is at this point that the organization will be prepared to work with a more highly detailed strategy.
Implementing complex planning systems in an organization that lacks experience is a recipe for widespread confusion and frustration. By answering the simple questions and then answering the complex ones, you’ll have better support and a better progression.
As a company once said… “First you get good, then you get fast.”
Market Planning
Have you ever found yourself in a store, at a till, swiping your card and walked away from any sum of your own money without knowing what you were buying? Not likely. This kind of thing happens every day in consulting houses and agencies all over the world. This is how I compare the idea of developing advertising campaigns without a solid link to your business objectives or concrete way of measuring the impact afterwards. I’m not going to sit here and beat up ad agencies, because the larger issue is that companies don’t give most agencies anything to work with.
Advertising without a plan
You need to ask yourself… Why am I communicating with the public? What is the call to action I’m trying to create? Is the value of that call to action worth more than I’m spending? What perceptions that are blocking further market progression am I trying to move?
Advertising without measurement
Here’s a couple more things you need to ask yourself… What are the most core aspects of our business model that cause people to want to do business with us? How are we doing in each of those areas? Where are the greatest gaps? How successful was our last advertising campaign in moving those core brand attributes forward?
Here are a few things to think about:
You need to establish a clear path for your advertising BEFORE you release the advertising hounds. You won’t know what this path is before you conduct enough of a study of your business environment to know how your brand performs in it’s natural habitat… the open market. Once you have implemented your campaign, you won’t really know how successful it was until you have compared the desired shifts in brand attribute perceptions against an updated measurement sample.
This is a simple sort of framework, but if you’re lacking any of these components… stop swiping your card until you have all your ducks in line.
Open Minded Planning
Plans come from the minds of individuals. The quality of your plan is largely based on the quality of input information available, but even more largely based on the kinds of “thinkers” you have in your organization. While it’s true that strategic people tend to rise to the top, this isn’t always the case.
I’d like to highlight an attribute of an effective strategic thinker … an open mind. I’m sure everyone likes to think they have an open mind, but this is likely more true for some than others. And for all of us, it’s likely more of a sliding scale depending on the topic.
One aspect of being open minded is knowing the difference between what is fact and what is opinion. Even when an open minded person is reasonably sure of a fact, they remain open to information that contradicts what they believe is true. This creates the opportunity to increase the quality of our beliefs and for alignment between perception and reality. While our brains naturally look for information to support what we believe about the world around us (hence, we remain sane) the open minded person has developed the discipline of considering new information honestly. By adopting any new belief, you automatically create blind spots to information that doesn’t support your new belief. It becomes a catch 22, but the recognition that our minds naturally do this is a big step in the right direction.
As you move into your next planning session, become aware of the mental habits your mind has developed. What kind of a shot do you give new information?
Options thinking
As you read about companies that were particularly successful in some way, do you see a common thread? I don’t see articles being written about companies that were incredibly effective in their black and white approach to business, how a power and control culture won them new markets, or how they capitalized on emerging market by leveraging their old boys club management structure.
Incredible companies are those that don’t think in terms of either/or. There are more options than what we’re currently capitalizing on. Too many companies current think like this: You win or I win. You get the raise or I do. This kind of thinking is based on the assumption that potential is fixed, based on how things currently are. This is a business approach that is completely devoid of vision. (Sure, there are realities about market-share etc… that needs to be seen in the current state - but companies need to add a layer of planning that looks out further to how things could be.)
Instead of cutting back on employee benefits to reduce costs and temporarily boost profits, what would happen if your high staff turnover rate was cut in half and employee productivity went up significantly because you were able to boost employee morale and loyalty. What would happen if you were able to partner with a competitor to create a new market and share development costs rather than fighting over old declining markets? What would happen if we started to question the assumptions behind much of our planning to consider the possibilities of how we could create something new and different based on our unique competencies and opportunities in a different way that would uniquely position us in the marketplace.
What could that do for your business?
Designing a metrics framework
I have been doing some more work with a client this week to design a set of metrics for a cooperative strategy. Obviously with a strategy like this, there are more dimensions to consider when laying out metrics than for a standard set of team measures. One has to take into consideration positioning risks and opportunities as well as what level of objective accountability you want to create. When strategies are shared across corporate lines, it often results in a much higher degree of accountability that normal for someone in a line-manager level job.
Here are some thoughts to consider when designing your strategy metrics:
Measures are used for many purposes:
• Measure the degree of success in a focus area
- Are we meeting expectations in the critical areas?
- Is the current strategy effective in creating the desired results? (a good use of resources)
• Understand the complex of dependant relationships between multiple areas of performance
- How do each of the areas we’re measuring impact each other / how are they linked?
• Positioning within an accountability structure
- Maintain objective accountability
- Strengthen support from the powers that be
Make sure they demonstrate some of the signs of a good measure:
• Expresses the desired outcome in a way that is clear
• The results are actionable: it will help you make choices
• Are linked to the long-term direction (either strategic direction at the corporate/division/team level, or through the tactics that support implementation of a corporate strategy/project)
Finally, when you’re dealing with metrics that have a high degree of visibility, you should ask yourself questions like the following:
• What tangible outcomes does the board/exec sponsor want to see demonstrated through this strategy over the coming 2-3 years?
• What kinds of outcomes can this strategy reasonably be held accountable for?
• Do the expectations for the strategy align with what can be accomplished in it’s current form / with the current resources?
• How do we want to position this strategy with the board? What messages do we want to reinforce through what we’re measuring? (example: this strategy is designed to create XX outcome in this area, aspects of your positioning that you feel need to be managed specifically)
• Within the current accountability structure are there any positioning risks that could negatively impact the success of the strategy (that we should be mindful of as we design the metrics) Example: Risk of people slipping back into thinking this is an internally focused profit strategy; lack of tangible profit could create frustration
How many measures are appropriate for the scorecard?
Once you’ve covered these initial bases, you should be in a better position to start formulating the metrics for each individual focus area of your strategy scorecard.