The one thing that most everyday drivers fear is that infamous “check engine light”. Unless its during the first few seconds of startup (the point at which every indicator on the dashboard lights up for a few seconds), a “check engine” alert is one of the few that signals that indicate big problems are imminent unless something changes fast…as in, stop the car soon and diagnose, or run the risk of being abandoned on the highway with a very costly repair. If you are someone who doesn’t take your vehicle’s indicator lights seriously, trust me (from experience), this is not one you want to ignore.

Dashboards, Indicators, and Alerts…

There are many indicators around us that alert us to changes in status of a process, and deviation from what may be considered to be a “normal operating condition”. And the place where most of these indicators are visible is on our dashboards. Whether it’s the dashboard of your vehicle, the cockpit display on an aircraft, the bridge on a ship, or a control room in a power plant; it’s the one central place where status is monitored and response strategies are determined, most often by the operator of the asset.

Of course, these deviations from the norm that show up on our  “dashboards” occur in varying degrees, and can signal very different things. A “service soon” indicator light your car dashboard is more “suggestive”, and usually means its time for an oil change or tune up. But you’ve generally got some time before it becomes a bigger issue. A “low fuel” indicator on the other hand, is a bit more significant, and usually means you’ve got a finite quantity of miles left before you are what we might call “SOL” (although I’ve tested this threshold on occasion and can attest to the fact that there is some (albeit small) “cushion” past 0 to rely upon). And then there is the “check engine” light that most often means PULL OVER ASAP ( as soon as safe and practical -but SOON).

I’m not sure about you, but I view the “check engine” light as analogous to to an “airspeed alert” that a pilot might get right before a stall condition, or a traffic alert he gets when another aircraft is within the allowed separation tolerance. You might not yet be “past the point of no return”, but you’re pretty darn close.

Dashboards and Scorecards: Is there a difference?

In the Performance Management discipline, we often hear people refer to the terms “Dashboard” and “Scorecard” rather indiscriminately, with little if any conscious distinction as to what they each connote. I’ve often avoided getting too “wound up” about this, because getting caught up in corporate “buzz phrases” and semantics can cause us to miss the bigger issues at play. But after reflecting on this a bit, I think the differences here are in fact worthy of some discussion. Not because the words themselves are super important, but because it is critical that both components (whatever you call them) need to be part of your EPM solution.

So here are is my take on the critical distinctions between the two:

• Purpose: Dashboards are about helping you navigate the journey. Scorecards are about how successful the journey was.
• Type of indicators included: Scorecards generally contain outcome results, Dashboards are usually comprised of leading or predictive indicators
• Timeframe: Scorecards are periodic and longer term (weekly, monthly, annual trends) in the review horizon, while Dashboards are shorter term and can even be real time
• Reaction– Scorecards should provoke next steps that involve introspection and analysis (drill downs, mining insights, etc.) where dashboards usually are designed to “signal” or “provoke” immediate actions or course corrections
• Targets– Scorecards usually report against a target, threshold or benchmark as a percentage gap and trend. Dashboards generally report metrics within or against tolerance ranges, outside of which signal a required change

As with anything, these are not hard and fast rules, but they should give you a sense of where I personally see the distinctions.

Sure, there are some grey areas here. Outcomes for some, may only be a part of a journey for others. There are also cases where an an outcome indicator might be so important that it is worth tracking in both places- on the dashboard AND the scorecard. For example, some car dashboards have an indicator that tells you what MPG you are getting out of your fuel consumption in real time. But while MPG would normally be an “outcome” metric (i.e.scorecard material), it may also be useful to some of us in watching the degradation or improvement to MPG as we change driving patterns (rapid “gunning” and braking, versus more constant speeds, for example).

Examples for the Fairway

A conventional golf scorecard

A few days ago someone posted about this same topic, using golf as their main analogy. And while I agreed with most of what he said, some of his examples created pause as I though of my time on the golf course.

We both agreed for example that the “stroke count versus par” was what you would always find on a conventional golf scorecard (hard to argue with that!). However, I would also say that stats like # of greens in regulation, puts per green, club distances, etc. should also be part of your scorecard, although maybe at a level or two down the chain. After all, these are things that need to be analyzed and challenged OFF the course (although I have been known to peak at them from time to time during the round). In fact, it is not uncommon for many golfers to track these very stats on their scorecard right underneath or beside their actual stroke count.

But if you put all of that on the scorecard, then what does the dashboard look like? We’ll if we think about it in terms of the 5 criteria I provide above, it would likely  be things like yardages to the hole (what i need in order to make my club selection), wind direction (what I need to shape my shot), # stokes ahead or behind the lead (what I need to manage my strategy), speed of the green (necessary in determining the line and speed of your putt), and the myriad of other factors that are utilized by professional golfers before and during a round. And while many of us may manage the above by “feel”, just take a look at a professional’s yardage book and caddy’s notes and you’ll see what looks strikingly similar to a dashboard (albeit manually illustrated with stray marks and notes). And if you want to spend the money, you can always buy some pretty cool dashboards for your iphone or blackberry.

Some Final Thoughts…

I think some of the confusion between dashboards and scorecards is because metrics are often combined in the same visualization, regardless of whether it is called a scorecard or dashboard. Even automobile dashboards have a place for total accumulated miles. Golf GPS devices enable you to enter score count. As I said before, the distinction is sometimes burry, and often not even that critical.

What’s much more important is whether or not you have the full compliment of indicators you need to manage the business. When most executives ask their teams to develop “a dashboard”, the content of what they are really asking for is unclear. Are they hungry for better tracking of results? Or are they asking for better metrics- those that will enable better decisions and more responsiveness? Or are they simply looking for better analysis of the results?

Unless you understand that, it will be hard to deliver on any of these requests or mandates, regardless of what you end up naming it. In the end, Scorecards and Dashboards are merely visualization tools. What';s more important is that you embed and align the right content into these tools that will enable a clear line of sight between vision, objectives, KPI’s, metrics, and initiatives that tells the complete story and enables those who are in execution roles to be successful.

The bottom line is that you are the designer and architect of the info that is displayed, and so all these distinctions- whether it is between scorecard and dashboard, long term versus short term, leading versus lagging, etc.— are really only important in terms of their usefulness in helping YOU design a system that is relevant and useful within your organization. What you call these things is not near as important as whether the system produces the right outcomes.

One of the biggest challenges faced by operations management is how to improve costs and service levels, especially when such a large portion of these costs are perceived to be “outside” of their control.

Despite recent attempts to control corporate overheads, it’s still very common for corporations to laden operating management with an “automatic” allocation for overhead costs such as Employee Benefits, IT, Legal, Facilities Management, Accounting…the list goes on. Our studies show that most of these costs are still allocated back to management as a direct “loader”, or percentage markup, on staff that is employed in the operating business units. Not only is this an unfair disadvantage to operating management who has little perceived influence on these costs, but it also results in a “masking” effect as these costs mysteriously get buried in the loading factor itself. Operating units struggle from year to year, trying to capture that next 1,2, 5 % of efficiency gains, while over 50% of their costs are, in effect, off limits.

But there are some organizations that clearly understand the challenges, and have begun to make nice strides in this area of corporate overheads. For some, it has involved ugly corporate battles, political in- fighting, and the “muscling in” of allocation changes. For others, the challenge has been a bit easier, by focusing on what really matters- visibility of overheads, and a direct path toward managing them.

Here’s a quick list of areas you can focus on to improve the way overheads are managed:

Transparency– The first, and most important driver for successfully managing overheads is making them visible to the enterprise. All to often, overheads from shared services functions are not visible to anyone outside of shared services organizations themselves. In fact, the word “overhead”, has an almost mystical connotation- something that just shows up like a cloud over your head.

One of my clients once said, “The most important thing leadership can do is to expose the ‘glass house’. Overheads need to get taken out of the “black box” and put into the “fish bowl.” Once you can see the costs clearly, both operating and corporate management can begin making rational assessments about to best control them.

Accountability– This is arguably one of the trickier overhead challenges, since managing overheads involves accountability at multiple levels. To simplify this challenge, most companies simply define accountability at the shared service level (VP IT, or VP Legal, for example) and leave it at that.

More successful organizations, on the other hand, split this accountability into its manageable components. For example, management of shared services functions can be accountable for policy, process, and the manner in which work gets performed. But there is a second layer that deals with “how much of a particular service” gets provided- and it’s that component that must be managed by operations, if we are to hold them accountable for real profit and loss (discussed below).

To do this right requires some hard work on the front end to appropriately define the “drivers” of overhead costs that are truly within line management’s control. A simple example is the area of Corporate IT, in which the IT department defines overall hardware standards and security protocols, while the variable costs associated with local support is based on actual usage and consumption of IT resources. That’s an overly simplified example, but still illustrative of how the process can work. Most overhead costs have a controllable driver to them. Defining those unique drivers, and distributing accountability for each will go a long way in showing how and where these costs can be managed.

“P&L” Mindset– There’s been a lot of debate around whether shared services functions can truly operate like real profit centers. The profit center “purists” will argue that internal services should behave just like “best in class” outsourcers, and if they can’t compete, they should get out the way. The more traditional view is that once a service is inside of the corporate wall, they become somewhat insulated from everyday price and service level competition. The reason being that “opening these services up to competition” would be too chaotic, and ignore the sunk cost associated with starting up, or winding down one of these functions.

A more hybrid solution that I like is to treat the first few years of a shared service function like a “business partnership” with defined parameters and conditions that must be met for the contract to continue. It takes a little bit of the edge, or outsourcing “threat”, off the table, and allows the operating unit and shared service function to collectively work on solving the problems at hand.

Still, shared services functions must look toward an “end state” where they begin to appear more and more like their competitors in the external marketplace and less like corporate entitlements. In the end, they must view their services as “universally contestable” with operating management as their #1 customer. For many organizations, particularly the larger ones, that’s a big change in culture.

Pricing– Save for the conservationists and “demand-siders”, most modern day economists will tell you that the “price tag” is the way to control the consumption of almost anything, from drugs to air travel. And it’s no different in the game of managing corporate overheads.

Once you’ve got the accountabilities squared away, and you’ve determined the “cost drivers” that are controllable by operating management, the price tag is the next big factor to focus on. One of the most important pieces of the service contract you have with operations management is the monthly invoice, assuming its real and complete. It needs to reflect the service provider’s true cost, not just the direct, or variable costs of serving operations. Otherwise, it’s a meaningless number. In the end, the pricing mechanism needs to be something that can be compared and benchmarked among leading suppliers of a particular service. For that to be possible, price needs to reflect the true cost of doing business.

Value Contribution– So far, we’ve only focused on the cost side of the equation. Now, let’s look at service levels.

For the more arcane areas of corporate overheads, where a pricing-for-service approach is more difficult, it is usually worth the time to understand the area’s value contribution to your business unit. Finding the one or two key value contributors is now the task at hand. For example, in US based companies, the Tax Department is generally staffed with high-end professionals, and often is the keeper of a substantial tax attorney budget. When treated from a pure cost perspective, a common rumbling among operating management becomes: Why am I paying so much for my tax return?

A better question would be: what value am I getting for my money? In this case, taking advantage of key US Tax code provisions can be expensive, but the cash flow impact (in terms of lower effective tax rates) can be a significant benefit to the operating unit. Clearly delineating and quantifying the value, combined with presenting an accurate picture of the cost to achieve that value (OH charges from the Tax department) can bring a whole new level of awareness to these types of overheads.

Of course, for this to work, you need to ensure that parity exists between the function benefiting from the value generated, and the function bearing the costs. So before you allocate costs, make sure you effectively match the budget responsibility with the function who ultimately reaps the benefits you define.

Service level agreements-This is the contract that manages the relationship between you and your internal service provider. It contains everything from pricing, to service level standards, to when and how outsourcing solutions can and would be employed. There must be a process in place to negotiate the standards, bind the parties, and review progress at regular intervals. While this can be a rather time consuming process (especially the first time out of the gate), it is essential in setting the stage for more commercial relationships between the parties.

Leadership– As with any significant initiative, competent and visible leadership is key. A good executive sponsor is key in getting through the inter-functional friction, and natural cultural challenges that will likely emerge during the process. Leadership must view controlling overheads as a significant priority, one that makes the enormity of the problem visible to both sides, and effectively set the “rules of engagement” for how to best address the challenges at hand. Without good leadership, the road toward efficiency and value of overheads becomes much more difficult to navigate

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So there you have it…my cut at the top ingredients in managing corporate overheads and shared service functions. The road is not an easy one, but if you build in the right mechanisms from the start, you will avoid some of the common pitfalls that your organization is bound to face in its pursuit of a more efficient overhead structure.

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Author: Bob Champagne is Managing Partner of onVector Consulting Group, a privately held international management consulting organization specializing in the design and deployment of Performance Management tools, systems, and solutions. Bob has over 25 years of Performance Management experience and has consulted with hundreds of companies across numerous industries and geographies. Bob can be contacted at bob.champagne@onvectorconsulting.com