Executive Scorecards

What differentiates a high performing organisation from the rest of the pack? An organisation's 'secret sauce' will inevitably boil down to the tools and frameworks that the organisation uses to optimise their scarce resources. In other words, high performing organisations are able to 'do more with less'. And for the vast majority of organisations, the most important resources are their people - the leaders, subject matter experts, connectors, coordinators, and doers.

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But when it comes to 'doing more with less', people (or human) resources are different to money, equipment, or any other organisational resource. Whilst we want to get the most from our people, we want to do so in a respectful, sustainable and mutually beneficial way. In addition to being the 'right thing to do', treating out people well makes good business sense.

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Of course, how we get the most out of our human resources differs across organisations. But despite these variances, a familiar playbook has emerged in recent decades for executive and senior leaders which involves a combination of fixed and variable remuneration, with the variable component driven by scorecard outcomes.

Scorecards in practice

In theory, scorecards are perfectly suited to assessing performance and feeding into the determination of variable reward. They are simple and easy to understand - most scorecards have a handful of measures, with each measure assessed against pre-defined targets.

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Despite this simplicity, in practice scorecards often fail to achieve their foundational purpose - providing objectivity and consistency in assessing performance. When scorecards fail, at best they represent wasted time. At worst, poorly created scorecards can damage employee morale and incentivise leaders to make bad business decisions.

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Common scorecard mistakes include:

• Treating scorecards as a procedural activity - scorecards should be a key element of the strategic planning process. Simply speaking, a scorecard represents what each leader is being asked to do for the year ahead. When scorecards are considered and debated with the right people in the room, they can be a powerful tool to drive alignment on organisational priorities and the individuals that are accountable for the delivery of those priorities. Too often the task of creating scorecards is 'outsourced' to the individual or HR with no coordinated review or assessment against strategy
• Too many measures in a scorecard - each measure in a scorecard is weighted, and the total weighting of the scorecard must add up to 100%. It can be tempting to force too many measures into a scorecard, which simply dilutes the weighting of each of the measures. Scorecards that have more than 7-8 measures have likely missed the opportunity to focus the leader's attention on a handful of key strategic outcomes
• Failing to consider scorecards from both the top-down and bottom-up perspectives - poorly defined scorecards may look good at the organisational level but be misaligned to individual roles and responsibilities. Conversely, poorly defined scorecards may work for each individual, but the sum of the individual scorecards may not add up to organisational success (for example, if the achievement of one person's measure directly conflicts with measures in peer scorecards)
• Failing to review all scorecards for consistency - while scorecards should be calibrated to the individual, each scorecard should conform to organisational 'hygiene' factors. For example, if every leader has a profit measure, any exceptions should be considered and deliberate. And when a measure is used in multiple scorecards, the target that leaders are assessed against should also be consistent. Poor scorecard hygiene has significant costs when it comes time to assess scorecard outcomes
• Measures that have been poorly defined - one of the hallmarks of a well-designed scorecard is objectivity of assessment. This, after all, is the point - scorecards are created at the start of the year so that there is transparency around how performance will be measured at the end of the year. Too often, scorecard measures are either not defined at all, or their definition leaves too much room for interpretation. For example, what does 'successful business case execution' actually look like? Is it enough that the business case was implemented? Should it be delivering value (and if so, how much)? What if the business case is implemented and delivering value, but cost more than was budgeted?
• Targets that are either too aggressive or too conservative - scorecards should be able to be used by leaders as their playbook for the year. If targets are set too aggressively, leaders may respond by 'writing off' the unachievable measures. If targets are too conservative, leaders may not maximise the potential benefits from a measure if the target has been achieved within the first few months of the year. Whilst it should be noted that scorecards only represent one dimension of what motivates a leader, poorly set targets can incentivise decisions that are significantly misaligned with the organisational strategy
• Inadequate communication of scorecards - even the most well designed scorecards will fail to deliver tangible benefits if they aren't clearly communicated to leaders. Communications should include the scorecard mechanics (how to understand and calculate scorecard outcomes) and the alignment between scorecards and the organisational strategy (why particular scorecard measures and targets have been selected)
• Treating scorecards as a 'set and forget' exercise - for scorecards to deliver the biggest organisational benefit, the measures and targets in scorecards should be front-of-mind for leaders throughout the year. Rather than filing the scorecard in a never to be seen again folder, leaders should be actively reviewing their performance at regular intervals, and adjusting their priorities accordingly. The 'set and forget' approach usually evolves when leaders don't understand scorecards, scorecards are not culturally important, and poor executive behaviours cascade throughout the organisation
• Not having a single 'source of truth' - the most foundational (but perhaps the most important) element of scorecard hygiene is to ensure there is only one source of truth for scorecards. The alternative - which is all too common - is the familiar array of Excel files, handwritten mark-ups, and supplementary emails. Aside from leading to awkward and difficult conversation at the end of the year, this lack of oversight and consistency make the distributed approach to scorecards susceptible to all of the risks identified above

Our approach

If all of those mistakes have scared you away from scorecards, think again. Yes, these mistakes are common, but they're also easy to avoid with a well-run process. Scorecard design can be straightforward, and we work with our clients to leverage this simplicity to design scorecards that work.

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Critical to this process is recognising the delicate balance between art and science. The art of scorecards is in finding balance - balance between organisational and individual, too few and too many measures, stretch targets that are achievable, collective and individual responsibility, etc. The science of scorecards is in clear definitions, well articulated targets, defined measures owners, etc.

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To strike this delicate balance between art and science:

1. We take the time to understanding how your business makes money, it's strategy, and what success looks like. These insights, which form the DNA of your business, are then baked into scorecards
2. We work with you to determine whether a top-down, bottom-up or combined approach to scorecard design is required. We facilitate workshops with contributors that are engaging and collaborative to surface the draft scorecard measures
3. We synthesise the draft measures into a curated list that represents the suite of measures to be used across scorecards, and then allocate these measures to relevant leaders
4. We conduct peer benchmarking using publicly available data. Peer consistency does not necessarily indicate best practice, however we understand most clients (particularly those that are earlier in their scorecard maturity journey) may want to design scorecards to be within a peer range for certain scorecard dimensions
5. Together with executive leaders and the scorecard sponsor, we review the draft scorecards for consistency and strategic alignment. This process is supported by advanced visualisation tools
6. We identify the owner for each measure. The owner is responsible for setting the measure definition and targets at the start of the year, and for providing the measure result at the end of the year
7. We work with the measure owner to set a meaningful definition and appropriate threshold, target and stretch hurdles
8. Together with executive leaders and the scorecard sponsor, we review the final scorecards (including the newly added definitions and targets)
9. We help design communication and education sessions for leaders to understand scorecard mechanics and the strategic intent behind the scorecard design. These sessions can be delivered by us, or internally

Throughout the scorecard design process, we also take a leadership role on scorecard 'hygiene' (for example having only a single source of truth). We provide guidance in addition to practical software solutions to ensure all of the time spent by your leaders on scorecards adds value.