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Balanced Scorecard for Product Managers, Part One

This is part one of a two-part series that will define a framework for putting strategies into action for product managers.

Even companies with a strong vision can struggle to align priorities at the highest levels. Functional leaders in charge of sales, development, or operations must manage their individual silos and often have difficulty prioritizing investment in their own function vs other groups. Indeed, a company vision can dissipate once the functional groups try to internalize it and define specific goals. For product managers who typically sit outside the functional structure of an organization, this is a concern as they are often pulled in multiple directions by stakeholders who are looking to achieve specific goals.

A framework for aligning a product vision and strategy to specific objectives exists with the balanced scorecard approach developed by Dr. David Kaplan and Dr. David Norton of the Harvard Business Review in 1992. Twenty-five years later it is still an extremely popular approach for developing strategic objectives and ensuring they can be measured to track progress. In fact, it was voted by the editors of the Harvard Business Review as one of the most influential business ideas of the last 75 years.

Noticing that companies were too focused on financial measures, Dr.'s Kaplan and Norton sought to understand what other perspectives were important for the long-term success of a company. Through interviews and research, they identified a balanced scorecard approach to focus not only on financial perspectives, but also customer, internal process and organizational capacity. These perspectives are then used to generate objectives and initiatives, a form of Objectives and Key Results (OKRs). By utilizing the important perspectives, a company can balance their OKRs.

Balanced Scorecard Perspectives based on Vision and Strategy

Through working with various companies and iterating on the original scorecard they also realized that the balanced scorecard could be used to accomplish a few desirable outcomes. Among them are:

  1. Align the organization on priorities based on the company vision.

  2. Determine causal relationships between perspectives to drive objectives.

  3. Identify leading and lagging metrics for measuring success.

  4. Develop stretch goals based on non-financial metrics with the ability to make organizational changes.

In order to understand how the perspectives are linked, the balanced scorecard approach maps the strategy from the different perspectives in a stacked format with causal relationships visually shown. This strategy map not only links the high-level perspectives, but should involve identifying the key objectives for each item so specific initiatives can be taken and performance measured to achieve the top-level results. An objective, is an overarching, non-time-bound goal for a strategic item. For instance, increased customer satisfaction, rather than raise Net Promotor Score (NPS) score to 25 by 2018. Each objective should be matched with a measure, or metric, which quantifies the objective and each objective has one or more initiatives to achieve the target. The initiatives are specific and time-bound.

The balanced scorecard provides an excellent framework for driving down from a vision to specific, measurable initiatives to achieve the vision. It is also a great tool for organizations to visualize the strategy and demonstrate the progress the company is making through metrics. However, it has some limitations, especially when introduced at fast-moving technology and software companies. The entire approach flows very much like a waterfall development with the creation of top level items that cascade down at each level until you finally derive the actual action items. This approach means it's vitally important to get the top-level items correct and doesn't leave a lot of room for adjusting to market and technology changes. In addition, the entire waterfall is dependent on a strong company vision and strategy. While it seems like every company should have a definitive vision, companies that have undergone a lot of change, such as multiple acquisitions, may no longer have the strong unifying vision. With each acquisition, a company is often forced to water down its vision to incorporate the new products or technology until the vision statement is little more than an idea to "do something good".

As a product manager, the balanced scorecard provides an opportunity to align stakeholders on the priorities for achieving the product vision. But if the company doesn't utilize a scorecard, does it make sense to create one for just a single product line?

Ultimately a product manager will be measured by the results they achieve. As a product manager, you have to determine the leading steps to achieve those results and then work with stakeholders to align on the priorities to ensure everyone is committed to the steps necessary. The balanced scorecard provides just the tool for facilitating this discussion. Due to the cascading nature of the scorecard, it's absolutely possible to create one for a single product line, even if it's not part of a larger scorecard. This modularity is key to creating success in the organization.

In order to be agile and be effective, product management needs to keep a few things in mind as the balanced scorecard is developed.

Start simple

Avoid data paralysis by starting with an overly complex measurement system that cannot be easily understood. As the scorecard gets built out with top-level objectives, measures, and cascading initiatives, the system will naturally get very complex. It's important that the top-level objectives and measurements align with the company and product vision and the relationship between the vision and the measure is clear.

Keep it iterative

The scorecard should be reviewed and drive product decisions. It cannot be a report that is simply used to measure performance, it must drive initiatives. During each review work to make the data reporting better and create more actionable initiatives.

Get buy-in

For a balanced scorecard to be effective it must measure from a balanced set of metrics that pertain to the customer experience. This requires input from all departments to ensure agreement with objectives resulting from these measurements. It's critical that all groups agree on the measures and the goals and work towards them.

Seek alignment of terms

The success of using a scorecard to drive innovation and development requires more than just a set of KPIs, it must drive objectives and performance. In order to do this, you must not only align your internal stakeholders on the metrics, but you must agree on the definitions of terms and how each of you will change your goals, objectives or performance metrics based on the measures in the balanced scorecard.

Be aware of blind spots

Focus and alignment are key for organization success, but if the wrong measurements are chosen, the company might miss an opportunity for improvement or financial success. The blind adoption of performance metrics does not allow for the company to be agile and respond to market changes. Similarly, ensure measurements represent the end goal. For example, if there is a customer success metric for measuring the response times, is this actually helping customers or just sending a canned response back in order to meet a target?

As part of the process make sure you review the perspectives you are using in your scorecard also. The four default perspectives tell a good story about a company, but there may be partnerships, quality or technology perspectives which are also important. A non-profit, might capture some of the financials to ensure they can complete the mission, but they might also have community impact perspectives to consider.

Promote it

It's vitally important that the balanced scorecard isn't just a dashboard a product manager uses for their own objectives. It must be promoted throughout the organization. Encourage others to adopt the scorecard or link initiatives in a cascading fashion. The scorecard can be used to demonstrate progress for the product over time, but in order for that to be effective the audience must be familiar with the scorecard and trust the information it contains. Unfortunately, a product organization has too few deliverables that are solely the responsibility of the product team. A product team is often measured through indirect influence in other departments - such as the number of new sales, number of new support cases, or development velocity. Promoting a scorecard that aligns the organization and has been supported by other departments is a deliverable that the product group can present and utilize the make future decisions.

In part two, we'll discuss the details of what the product balanced scorecard dashboard would look like and how to use it in your stakeholder meetings to keep on track. For the first step though, you need to introduce the concept to your stakeholders and seek alignment on three areas.

What is the product vision?

What are the perspectives that concern us most?

What are the high level objectives for each perspective?

When first coming together as stakeholders, creating a simple chart of the vision, perspectives and objectives can provide the discussion about what items will most benefit the success of the product.

As you work with your stakeholders, continue to ask why. Why these perspectives? Why these objectives? Ensure there is data to support your objectives and when no data is available, make an initiative to validate the objective before spending time trying to achieve it.

The balanced scorecard provides a great tool for organizations to take their product vision and turn it into measurable objectives to judge performance. It's also a great tool for aligning the organization and ensuring a balanced investment in both current initiatives and growth avenues for the future. There are thousands of books (more than 1,500 on Amazon), consultants and sites dedicated to the balanced scorecard framework, however, I believe the best approach is an agile one. Work with stakeholders to understand what metrics they track now and which are important to them. Align on key objectives and measures for the four perspectives and then meet regularly to determine what actions you need to take to create a successful outcome.

See Part 2 for steps to take your objectives and create actionable initiatives with measurements to track them.