Driving best-in-class IT Strategy using an IT Balanced Scorecard

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Talk to the heads of the IT function about what’s keeping them busy, and the chances are that it is skewed towards addressing the high priority project that takes away half his/her bandwidth, and is fairly overcast by the high sensitive fire that needs to be doused immediately if not the day-to-day coordination with vendors galore. In spite of all the good intent and the strategic drive to align the long-term IT roadmap of the bank with that of its business strategy, the bandwidth of the IT function invariably does get hijacked periodically by all-new highly strategic initiative that gets thrust all of a sudden, or redefined priorities in the middle of the year or the urgent housekeeping activities that tends to keep them awake at night. And when the year comes to an end, and one looks behind what transpired through the last 12 months, one realizes that the rolling stones have not, but naturally, collected much moss.

The issues that are typical of an IT organization in any bank could be summarized across 5 broad themes, which essentially reflects the spirit of the IT Strategy of any new age bank:

  1. Driving strategic relevance of IT and enablement of superior customer experience
  2. Improving the return on IT spend, and enhancing its effectiveness
  3. Investing for the digital future –continued improvement for the next generation banking
  4. Aligning the IT applications & technology infrastructure in line with the overall vision
  5. Enhancing and developing the skills & potential of the IT organization.

 

Building the IT Balanced Scorecard:

IT strategy can be viewed as the technological way to addressing business priorities across the four perspectives of customer, financial, process and organization, and enable business aspirations of better access to information, higher reduction of risk and further increase in efficiency.

While the themes may be common, the IT Strategy of the bank is as good as its implementation and adoption. This is not only a function of designing a good IT roadmap that is well aligned to the strategy, but also a direct resultant of how disciplined the bank is, in implementing it in its day-to-day functions. And that is where the Balanced Scorecard (BSC) helps, and does so quite comprehensively.

The Balanced Scorecard has been acknowledged as one of the most seminal concepts to help in implementing strategy, and is globally acknowledged to be a powerful enterprise performance management system. By definition, the BSC helps articulate strategy across both financial and non-financial (including customer, internal process and organizational) objectives, and facilitates in driving its execution through an effective system of measurement. At the end of the day, what gets measured is what gets managed, and the BSC brings in the discipline of measurement to track performance of the strategic objectives.

Should the bank have a scorecard defined at a corporate level, it becomes even more effective to have a cascaded IT scorecard, although this is neither mandatory or a pre-requisite. Laid out here, are in 4 simple steps, the approach to defining and adopting an IT Scorecard for the bank, to help drive a best-in-class IT Strategy.

  1. Articulate your objectives:

The starting point of a well driven IT strategy is in having it articulated accurately in the first place. The crux of this definition process is in having the objectives grouped across the 4 perspectives of the Balanced Scorecard:

  • Customer: How should customers (internal & external) perceive the services rendered, addressing their expectations and aligned to the overall IT vision?
  • Financial: What is the value proposition of the IT function to the enterprise, from a financial perspective?
  • Process: How should the processes be driven across planning, innovation, operational excellence, and how do we improve it?
  • Learning and growth: How should the IT organization learn and improve? What technology and MIS framework would be required?

There are typically 3-5 objectives that get defined for each perspective, and collectively no more than 20 -25 objectives for the overall IT function. The linkage of these objectives, results in a well articulated strategy map, that defines the cascaded impact of each area over the other.

  1. Define measures & set targets:

What cannot be measured, cannot be managed. It therefore becomes imperative, that the strategic objectives that are defined for the IT enterprise also gets to be defined by specific measures, that are both practical and appropriate. These could be both lead measures which help in taking preemptive steps, or lag measures that help determining the impact. Mere measurement alone would not be sufficient, unless they are set against the context of a target that need to be achieved – which could be conservative, realistic, aggressive or in select situations, aspirational or breakthrough.

Having set measures and reporting on the basis of a structured scorecard helps as a communication tool – where the impact on business is reported on a tangible metric. It also helps as a management tool, as it looks inward to the IT organization to manage and monitor IT performance.

  1. Align strategic projects:

So much of the CIO time gets sucked into managing the projects, that the job almost dilutes into just being a PMO function in most banks. Not surprising indeed, at least in situations where there are at least 100 odd projects of varied size and scale are running at any given point of time. No wonder then, that 24 hours does not seem to be enough for the day!

The Balanced Scorecard helps in prioritizing the initiatives quite well. If a project is not directly impacting any of the stated strategic objectives, then it is not worth pursuing! Conversely, any objective would need to be supported by an initiative or a project, as its vehicle towards completion. Just as the BSC objectives are measured, it would also be important to set Quality, Time and Cost (QTC) measures and key milestones for the IT initiatives to monitor progress. The IT BSC helps one do just that, quite effectively.

More importantly, this alignment also brings in the discipline of differentiating the means from its end. The projects by themselves are only but means to a larger strategic goal, and keeping this outlook is also quintessential to draw the fine line of balance from a strategic perspective. Just as a Lean-Six Sigma Business Process Re-engineering exercise is not an objective, but an initiative that will help address a financial or process objective, a Core Banking change is also the means to a larger end of a driving a contemporary technology platform in the bank.

  1. Measuring individual metrics – key for enterprise performance

The scorecard can remain a theoretical exercise, unless it gets to be made accountable across the appropriate owners of respective objectives and initiatives. Even better, when the Individual Performance Measurement (IPM) is completely aligned to that of the Enterprise Performance Measures (EPM) as measured by the IT Balanced Scorecard. This tends to positively influence the values and behavior required of successful IT organizations. The key success factors also include ensuring ‘singularity’ of ownership (collective ownership results in no ownership) and in alignment of the objective-initiative ownership. So where the initiative is directly linked to an objective one-to-one, the ownership of both the initiative and the objective is best assigned to the same individual.

Leveraging the scorecard to drive performance:

Forward looking banks also tend to leverage the BSC as a tool to measure performance of vendors, and create a reward system that is built around the demonstrated performance around the 4 perspectives. Typical measures tend to be around transparency in pricing (Financial), Investment in the relationship with the bank (Customer), Quality of Delivery (Process) and Consistency and quality of resources (Learning & Growth). The scorecard also helps drive large transformation programs and / or Mergers and acquisition programs, where the integration metrics are set against well defined measures across Quality, Timelines and Monetary budgets. The Balanced Scorecard can also be effectively used to drive partnership & service agreements with suppliers, service providers and business functions.

The Balanced Scorecard is but an effective tool to communicate, focus and align an organization or a program around its strategic objectives.  However, it can only be as effective as it is made to be. Unless there is a rigor in having the performance measures reported on a monthly basis, and a review is forced by the CIO with his / her direct reports, and the performance (or lack thereof) is explicitly acknowledged, the incentive to perform rapidly diminishes. Remember, people respond well to what is ‘inspected’, much better than to what is ‘expected’!

 

For a further conversation on this subject of Cedar View or how we may be able to help please email V. Ramkumar, Senior Partner, Cedar at V.Ramkumar@cedar-consulting.com