In 1992 Robert Kaplan and David Norton wrote what became a pretty famous business article called "Using the Balanced Scorecard as a Strategic Management System." The idea proposed in the article was pretty straightforward and I would even say intuitive: to really understand how your business is doing, you need to understand more than the financial performance — understanding non-financial performance is the key to predicting future performance. That skips over a great deal of detail, but it's certainly a central thrust.
The balanced scorecard model seeks to balance financial performance with three non-financial aspects of the business:
- relationships with customers;
- internal business processes; and
- learning and growth.
A fascinating lesson here is related to the need to balance emphasis on the factors that affect the here-and-now, as well as the long-term growth and achievement of strategic objectives. When the emphasis is on short-term financial measures, you risk heading off track from what you want to achieve strategically. In my experience, one exacerbating element of this is the very human trait of wanting to focus on the stuff that you can readily measure and ignore what is less quantifiable (which can sometimes be the more strategic, longer-term factors).
The tyranny of the billable hour
Our past focus on maximizing individual consultant billable hours is one good example of over-emphasizing financial measures. It was something that was readily measurable and perhaps fit into a less complete understanding of what we were really trying to achieve as a company. Now we are focused on project throughput (or project flow) and we've learned that a focus on the easily measured billable hours per person drove the wrong outcomes for Habanero and our clients. In fact, the billable utilization measure that used to be a core leading indicator of success is now not even part of our operations discussion. We found focusing on it drove the wrong behaviors in the company.
Tying this into to Habanero's purpose
We have been working hard lately on refining our purpose as a company. Part of the rationale for this work has been to get clearer about exactly why we exist and translate that into something we can take action on. This will certainly impact our balanced scorecard view of the company and increase clarity and confidence in our longer term strategies. The elements of purpose that are really standing out are:
- relationships of all sorts, including relationships with people here and our relationships with our clients;
- our desire to make an impact in those relationships; and
- our desire for those impacts to improve people's lives (if even in a small way).
As this work evolves for us, we will be able to use it to refine our balanced scorecard view of the company and refine the operational focus it drives.