As companies invest in business tools, specifically accounting and operational software, analytical components are becoming more important. Long gone are the days of confirming that software will maintain accurate inventory levels, manage customers that are on credit hold, or generate 1099’s properly. The standard functionality in ERP solutions is rich and robust. Expectations are readily met by all the major publishers in the software industry.
What is more important and provides a true distinction among the software provides is the ability to provide analytical tools. The software industry has truly met their promise to free up staff time from mundane, repetitive, easily automated tasks. ERP software has fully arrived. Now that staff is ready to analyze the results to improve the overall health of their businesses. The software providers that have risen to the challenge are few and still far between. What should those analytical tools provide?
Performance reports (both financial and non-financial) are no longer enough. For effective performance management, the numbers need to be accompanied by “how and why” so that managers know what to do next.
Dashboards and scorecards are analytical tools that allow you to focus on the stats that are important to your business. But, what exactly do these tools do? If you ask most people to give you an off-the-cuff definition of either one, you will likely get the same response for both terms – a customizable view of key performance indicators (KPIs) that give you the information you can act upon. The true meaning of these terms goes beyond that simple definition. Before you implement either of these tools, you need to understand the differences between them to determine which one is most appropriate for your needs.
Similar to the dashboard in your car, a performance management dashboard is a display of various meters, gauges, and lights that give you up-to-date information on the current status of your business. The metrics used in dashboards tend to tell more of the “what” part of performance and are very user specific. The dashboard metrics do not inherently tell you whether the results are positive or negative; this is left up to the user’s own interpretation of the data.
Still, customizing the dashboard with alarms or status colors allows for a faster and more efficient understanding of the results. This tool is most effective for managing hourly and daily performance and is typically used by low and mid-level operations and customer support managers who need to see data that is current (and often real-time).
Scorecards are the performance management tool that compares strategic goals with results. This tool is typically a top-down approach that allows management to implement its strategy by aligning performance with goals. Similar to a grade school report card, the scorecard measures periodic results (weekly, monthly,
quarterly, annually) against a predetermined goal, allowing users to gauge how their performance stacks up against expectations.
Which One Should I Use?
Dashboards and scorecards are not mutually exclusive. In fact, the best analytical tools are often a combination of both. Each user should use the tool or tools that are most appropriate to their function and responsibilities. Additionally, the two tools can be combined into a hybrid tool. Dashboard metrics should provide some tie-in to business objectives. Likewise, scorecards can include graphics to improve readability.
The benefits of dashboards and scorecards easily outweigh the costs associated with implementation. Both tools add real and immediate value to daily operations and managing performance.