|Average Companies Include Nearly Nine Times too Many Metrics, Focus Heavily On Historical Finance Data and Not Enough on Forward-Looking Indicators|
Less than 20 percent of all typical companies have mature balanced scorecard implementations in place that are generating business value, according to research from The Hackett Group, a business advisory firm and an Answerthink company (Nasdaq:ANSR).
At their most effective, balanced scorecards can be powerful tools, providing concise, predictive, and actionable information about how a company is performing and may perform in the future, and world-class companies are 159 percent more likely than typical companies to have mature balanced scorecards in place, according to Hackett's 2004 Finance Book of Numbers research. But the full benefits of effective balanced scorecards are not being realized for more than 80 percent of typical companies examined by Hackett. Primary reasons include too many metrics and overweighting the scorecards with historical financial information.
According to Hackett, companies report an average of 132 measures to senior management each month - nearly nine times the number of measures in most effective balanced scorecards. In addition, half the metrics companies rely on are driven by internal financial data, which places far too much weight on historical performance and not enough emphasis on forward-looking measures such as external financial and operating performance.
The Hackett Group is a world leader in best practices research and process benchmarking, helping clients achieve world-class performance through continuous improvement initiatives. Hackett offers analysis backed by research at more than 2,400 client organizations, including 93 percent of the Dow Jones Industrials.
The findings are covered in Hackett's 2004 Finance Book of Numbers research, and also in a Hackett Perspective research report, "Balanced Scorecards: Are Their 15 Minutes of Fame Over?" which is available exclusively to members of Hackett's Plan-to-Results Business Advisory Service. It includes the following key research findings:
Few Companies Have Mature Balanced Scorecard Programs - Hackett's 2004 Finance Book of Numbers research found that overall, nearly two thirds of typical companies have some type of balanced scorecard program in place or in development. But Hackett found that only 17 percent of all typical companies have developed mature balanced scorecards that rely on a mix of financial and operational metrics. World-class companies are 159 percent more likely to have reached this level in their balanced scorecard efforts -- but even at world-class companies, only 44 percent have achieved this goal. According to Hackett's research, this suggests that most companies are having significant difficulty taking balanced scorecards from concept to reality.
Most Companies Rely on Far too Many Metrics - Hackett found that companies report an average of 132 metrics to senior management each month (83 financial and 49 operational). This is nearly nine times the number of measures suggested as appropriate when the concept of the balanced scorecard was introduced in 1992.
Companies Focus Too Heavily on Finance Data - Balanced scorecards should focus on a mix of internal and external measures. But according to Hackett's research, 50 percent of the measures companies currently use are keyed to internal financial data. Other measures are incorporated, including internal operating statistics (33 percent), external financial data (13 percent), and external operating (4 percent). But clearly, internal finance data is too heavily weighted to make the scorecards truly balanced.
"Given the way the concept of the balanced scorecard has evolved in practice, it is no wonder that many financial executives look on the concept as an expensive, bloated, and useless substitute for the traditional paper reports. Most companies get very little value out of balanced scorecards, because they haven't followed the basic rules that make them effective," said Hackett Senior Business Advisor John McMahan.
According to Hackett Finance Practice Leader Cody Chenault, "If you're tracking nine times the recommended number of metrics, you're confusing detail with accuracy and it's going to be almost impossible to see indicators that might emerge from the data. Companies make the mistake of relying heavily on historical internal finance data. It's what they understand best, and are the most comfortable with. But by putting little weight into forward-looking internal and external metrics, such as sales forecasts, market share, competitor pricing, and broad economic indicators, companies sabotage their own balanced scorecard efforts. They create a system that's about as effective as driving with the windshield covered while looking in the rearview mirror."
Hackett now offers more than 12 Business Advisory Services that address the needs of C-level executives and process managers in finance, IT, HR, procurement, and shared services. They are premium-value, membership-based services providing confidential advisor inquiry, best practices research, and peer learning opportunities. More information on The Hackett Group's Plan-to-Results Business Advisory Service is available: by phone at (404) 682-2500; by e-mail at firstname.lastname@example.org; or on the Web at http://www.thehackettgroup.com.
About The Hackett Group
The Hackett Group (http://www.thehackettgroup.com), an Answerthink company, is a business advisory firm providing empirically based advice and best-practices research to executives seeking to drive world-class performance in areas such as finance, IT, human resources, and procurement. Hackett's functional and process-specific benchmarks and its confidential, on-demand, membership-based advisory services are backed by an ongoing database of best practices in processes, technology, and organization in use at more than 2,400 clients around the globe. This unparalleled information repository allows Hackett business advisors to provide data, advice, and strategic insight with a level of integrity and authority available nowhere else. As of this writing, Hackett clients comprise 93 percent of the Dow Jones Industrials, 80 percent of the Fortune 100 and 90 percent of the Dow Jones Global Titans Index.
Answerthink, Inc. (http://www.answerthink.com) is a strategic business and technology consulting firm that enables companies to achieve world-class business performance. By leveraging the comprehensive database of The Hackett Group, the world's leading repository of enterprise best practice metrics and business process knowledge, Answerthink's business and technology solutions help clients significantly improve performance and maximize returns on technology investments. Answerthink's capabilities include benchmarking, business transformation, business applications, business intelligence, and offshore application development and support. Founded in 1997, Answerthink has offices throughout the United States and in Europe and India.
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