by Ed Tann, Director, ISG
As Barton, and Virgil before him, reminds us: it takes hard work to win results. The balanced scorecard for sourcing promises a lot – to determine, measure and manage a set of predictable outcomes. But, like most treasure, it is the thing of whispers. There’s actually not much of a map to it, and only few have enjoyed its largesse. Indeed, the lack of a structured scorecard may have led a number of organizations into the poorly scrutinized, headline-making sourcing contracts with which the industry is, sadly, all too familiar.
Though constructing a balanced sourcing scorecard involves a degree of soul searching and rigor, the rewards at the end of the process are considerable. The following Top 5 guidelines will help you to construct a scorecard for your next sourcing transaction.
- Create a map to flesh out the sourcing strategy. Use an established model that is based on the proven multi-dimensional Kaplan and Norton scorecard construct as the skeleton upon which to attach the meat of your sourcing scorecard. Resist attempts to change this established structure; it works. Allow it to prompt the right thinking.
- Measure activities not outcomes. Objectives are about outcomes, and strategies are plans for achieving those outcomes. Measure the activities that underpin your strategic plans. Acknowledge major challenges, address tricky fundamentals and question entrenched patterns of behavior. The result should be a set of activities and associated measures that manage obstacles and create competitive advantage for client and service provider.
- Guide the pre-contract process. A good deal of form and rigorous strategic thinking in the pre-contract phase is imperative to establishing fundamentals. Pre-contract deliberations will inform a great deal of the transaction including the definition of services, the assessment of the service providers’ attributes, the characterization of the type and term of the contract, the evaluation of the bidders and the definition of the service-level agreements (SLAs).
- Manage the relationship during and after the contract. Your scorecard should underpin the delivery of services during contracting and beyond, guiding the business case requirements for both parties, value adds and investments in governance and innovation. Base SLAs on operational strategies rather than off-the-shelf norms. Use your balanced scorecard as a tool for continual relationship improvement, using inputs from senior managers from both the client and the provider that yield actionable improvement items.
- Manage the provider’s operations. Providers need to confront the high stakes challenges of today’s competitive environment. They face margin-squeezing shifts in supply and demand, advanced cost and delivery models, new and powerful market entrants, general supply “switchability” and an increasingly savvy buyer. The scorecard produces a coherent analysis and measurement framework to help provider align its business to these fundamentals, devising go-to-market strategies, rebalancing costs, prioritizing investments and building capabilities.
As on the sports field, discipline and hard work will pay off in the competitive sourcing marketplace, especially with an expertly structured balanced scorecard. For more information, contact Ed Tann, Director, ISG, at firstname.lastname@example.org or +44 7769 977530.