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The balanced scorecard: A foundation for the strategic

management of information systems.


Martinsons, M., R. Davison and D. Tse. 1999. Decision
Support Systems (25): 71-88.
Summary by Eileen Z. Taylor
Ph.D. Program in Accounting
University of South Florida, Spring 2004

Introduction

The productivity paradox is a major issue at the crux of accounting and


information systems. On the one hand, millions of dollars have been invested in
Information Technology; however, this investment cannot be linked to
concomitant increases in productivity or profit. Are these investments cost
beneficial? If they are, why cant we see the evidence?

There are two reasons given for this paradox. First, it may be related to
how we measure productivity and profit. Many investments in IT provide
intangible benefits; ones that resist traditional measurement techniques. Second,
it is thought that the full potential of these improvements is not being realized
because business processes are not being changed to meet the changes in IT. In
other words, these improvements are underutilized.

The authors suggest that Kaplan and Nortons Balanced Scorecard (BSC)
approach can be modified to address the mismeasurement issue. The BSC has
been developed as a way to both communicate business strategy, as well as direct
attention to drivers of financial success. The traditional BSC divides performance
into four perspectives: financial, customer, internal process, and learning and
growth. The authors propose that the BSC can be revised so that it becomes a
useful way to measure IT project success. The following graphic illustrates the
balanced scorecard framework and the relationships between perspectives.
Evaluating business functions, departments and projects

The authors first undertake an explanation of critical differences between


IT departments and other general business functions. They note that IS
departments are typically internal to the organization, their product serves both
the users, as well as the organization (there are no external customers). Also, they
feel that the value of IT must be considered from a top-down approach. Based on
the mainstream IS literature, they modify the original BSC to fit within an IS
context. The revised scorecard framework illustrated below provides a graphic
view of their modifications.
The four new perspectives that are identified include: user orientation,
business value, internal process, and future readiness. Table 3 provides a listing
of each perspective, its mission, key question, and objectives.

The user orientation perspective is an end-users view and seeks to


develop an ongoing relationship with end-users (customers).

The business value perspective is managements view. This


perspective is concerned about the contribution of IS to the entire
organization. It also has a focus on cost control and establishing a
continuing relationship with management.

The internal processes perspective is an operations-based view. Its


objective centers on efficiency and effective management of issues.

The future readiness view is similar to the learning and growth


perspective. It emphasizes innovation and learning. Objectives
focus on upgrading hardware and software, updating IT application,
and build IS skills through employee training.

Measuring and Evaluating Business Value

The paper identifies several approaches to measuring value. The most


traditional is to use budgets. Benchmarking is also noted. However, value is a
broader concept. The authors note that the value of a single IT project is often
interrelated with other projects such that they are complementary. Both need to
be undertaken for value to be created.

The information economics method is also described as a way to measure


value, while considering risk. The exact process is explained further within the
text. However, it is important to note that this method allows joint assessment by
all parties involved (end-users, developers, management). Value linking, value
acceleration, value restructuring, and strategic IS architecture are also mentioned.

Measuring and evaluating user orientation

Unlike in other businesses, the market of the IS department consists of


internal end-users. Therefore, ideas like market growth and market share are not
applicable. However, it is important to develop a good relationship with the end
users, les they go elsewhere for their IT needs. Therefore, satisfaction of current
customers is a key. Trust is also a key factor.

Measuring and evaluating internal processes

Internal operations center on planning and prioritization of projects,


development of new IT applications, and operation and maintenance of current
IT applications. (p.80). The goal throughout is high quality and low cost. The
problem with measuring IT success is the lack of a standard set of measurements.
The authors suggest measuring lines of code and function points as possible
solutions.

This section also addresses ways to increase demand. This can be done by
finding new customers for existing services or providing additional services to
existing customers.(p.81)

Measuring and evaluating future readiness

There are three components to this perspective. They include: improving


employees skills, updating applications, and researching emerging technologies.
Development of knowledge management systems and artificial intelligence
programs are both ways to improve future readiness. Environmental scanning is
also critical so that the department can adapt to new trends.

Building a balanced IS scorecard

There are 7 steps involved with building a balanced IS scorecard. They


include:

Introducing the BSC method to management

Collecting and analyzing data on strategy, objective, and


metrics

Defining objectives based on the four perspectives

Developing a preliminary BSC

Soliciting comments and feedback

Achieving a consensus

Communicating the final BSC to all parties

Cause and effect / Performance Drivers

Cause and effect relationships should be well defined among the four
perspectives. Additionally, the measures should include a mix of both outcome
measures as well as performance drivers. These need to be linked to financial
measures.

The new monitoring system should be continuous managers should be


able to see how a change in one perspective affects the other perspectives.

Case Studies Practical notes

The authors studied the implementation of a BSC approach in three Hong


Kong companies. They identified three problems (p.84):

1. No specific long-term objectives


2. No identification of cause and effect
3. No communication of the BSC rationale and contents
Future readiness was identified as a perspective that suffered from lack of long-
term objectives. Also, internal process goals were not seen as challenging or
specific to overall goals. Modification is suggested. Finally, successful
implementation requires communication of explicit cause and effect
relationships. This communication was non-evident in the case studies. In
addition, individual performance evaluations and rewards were not linked to the
BSC objectives. Thus, managers may have been unmotivated to adhere to the
BSC.

Overall, more research needs to be done on BSC implementation in an IS setting.

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