Aligning System Architecture with Corporate Strategy using a Balanced Scorecard

The concept of a balanced scorecard was developed by Dr. Robert S. Kaplan of the Harvard Business School, and Dr. David P. Norton, and is explain in their book Translating Strategy into Action. The Balanced Scorecard. The basic idea is that the, vision and strategy of an organization can be expressed as a set of goals and their associated objectives, measures, target values and initiatives. I covered defining goals and objectives for system design in a previous article. The Balanced Scorecard approach extends the scope of goals and objectives to the entire enterprise. Originally this approach was suggested as a business-measurement system but it has evolved into a business-management system. By continually measuring progress toward the objectives, the execution of a strategy can be monitored, corrections can be made, risks can be reduced, and the chances of success increased.

The key innovation of the balanced scorecard approach grew out of a simple realization. Most businesses only track progress in a measurable way from a financial perspective. Kaplan and Norton claimed this, single perspective view was “unbalanced” and that this lack of balance is inappropriate for “information age” corporations. They identified three additional perspectives, or areas of concern, that most businesses should also monitor. Listed below are the four perspectives they identified.

  • Financial
  • Customer
  • Internal Processes
  • Learning and Growth

In subsequent analyses it has been found that companies which use a balanced scorecard and place greater emphasis on the Internal process perspective are more successful. These companies typically assign approximately 1/3 rd of all objectives to internal processes and then equally divide the remaining objectives among the other three perspectives. This is the essence of the balanced scorecard. Kaplan and Norton claim that just 20 to 25 objectives, with measures, across the four perspectives can be sufficient to communicate and implement a strategy. There are entire books, software systems, and companies dedicated to the explanation, implementation, and monitoring of balanced scorecards but, in principle at least, the approach remains simple.

Defining Objectives with both Leading and Trailing Indicators

As the Balanced Scorecard developed from a business-measurement tool into a business-management tool it became more important to track leading indicators of progress toward goals as well as trailing indicators that measure achievement of goals. In some cases a single objective can have both leading and trailing measures that can be used to ensure progress is being made and indicate when the objective has finally been achieved.

Balanced Scorecard

Linking Objectives to Create Cause and Effect Relationships

Kaplan and Norton state that

A strategy is a set of hypotheses about cause and effect.

They also point out that while many balanced scorecards are just collections of objectives grouped into four perspectives the best scorecards link these objectives into chains of cause and effect. These chains typically link objectives across all the perspectives. They often start with objectives for learning and growth and show how they are intended to create improvements in Internal Process. These improvements are in turn supposed to positively affect customers’ behavior and thus lead to financial benefits (The diagram above illustrates this type of linkage). By creating cause and effect links an entire strategy can be clearly expressed in a measurable way that can be monitored and corrected as needed.

Cascading the Balanced Scorecard through an organization

After defining a corporate balanced scorecard an obvious next step is to cascade balanced scorecards down through the organization. Just as a balanced scorecard can be developed for an entire corporation, one can also be developed for a business unit within a corporation, or even a team within a business unit. Kaplan and Norton insist that the structure of balanced scorecards must reflect the organizational hierarchy. Presumably this ensures unambiguous ownership of goals and objectives although they offer no explanation. Ensuring that lower level balanced scorecards are aligned with higher levels is crucial. The goals and objectives at lower levels should be clearly linked of those at higher levels that they support. The process of cascading a balanced scorecard is not easy. It is often difficult to map the general measures defined at the corporate level to specific measures that the business unit can affect.

Cascading a Balanced Scorecard

Kaplan and Norton take care to point out that the four perspectives they define are not the only ones that can be used. Unfortunately many practitioners of this approach have reduced these four perspectives to unchallenged dogma. Despite this, in many cases, they are perfectly adequate. However it is my belief that as balanced scorecards are cascaded down an organization the relative importance of the different perspectives changes. In extreme cases perspectives may become unnecessary and some new ones may need to be added. This is particularly true in the case of Enterprise and System Architecture.

In a pervious article I described the interaction of Business Policy, Strategy, and Architecture in system design and concluded by saying

Understanding how a System Architecture supports it’s Business Strategy within the framework of an Enterprise Architecture and how these in turn support Corporate Strategy and ultimately Corporate Policy is essential if systems are to deliver business value. This is not easy and is one reason why so many systems fail to deliver business value. The difficulty stems from the ever-changing business environment that forces continuous changes in goals and objectives. Making the goals and objectives explicit and then tracking them as they change is the only way to keep up with the game. But that is the topic for another time.

The Balanced Scorecard approach provides a way to handle these issues. The following sections describe an approach that handles the important distinction between corporate policy and strategy and introduces a new additional perspective to the four suggested by Kaplan and Norton that should be used when enterprise and systems architectures are involved.

Corporate Policy as a subset of Corporate Strategy

The goals and objectives of the corporate balanced scorecard should be labeled to indicate if they are corporate policy and therefore public knowledge or internal and therefore confidential. Corporate Policy is the subset of corporate goals and objectives that are discussed with investors and industry analysts in order to explain the corporate strategy. Some of the corporate strategy is kept internal to retain strategic advantage and strategic flexibility. These differences are important because it is easier to change internal strategy than it is to change corporate policy. Changes to corporate policy must be explained to investors and financial analysts. Changes to internal strategy need only to be communicated within the organization.

The Quality Attribute Perspective

When developing an enterprise architecture a new perspective should be added to the existing corporate balanced scorecard. This perspective should define the quality attributes of the enterprise architecture. Quality attribute definition has long been used to specify desirable capabilities of software systems (I will cover the definition of software quality attributes (capabilities) in another article). What this approach has lacked in the past is a way to link the goals and objectives for quality attributes into the overall corporate and business strategy. By adding a quality attribute perspective to an existing balanced scorecard this problem can be solved. The new quality attribute perspective should be subservient to all other perspectives. Every goal and objective on the new perspective must be linked to one or more other goals or objectives in the other perspectives. There is absolutely no point in defining goals and objectives for enterprise architecture quality attributes unless they support some other business objective. Enterprise architecture has no meaningful purpose independent of the enterprise! By making the relationship between the quality attribute perspective and the rest of the balanced scorecard explicit changes in corporate strategy can be assessed in terms of their impact on the enterprise architecture and vice versa.

Enterprise Architecture and the Balanced Scorecard

After the corporate balanced scorecard has been cascaded down through the organization. A similar process can be performed for the quality attribute perspective. If a business unit is developing one or more software applications then a quality attribute perspective should be developed for each system. Each quality attribute perspective must be derived from the Corporate Enterprise Architecture Quality Attributes. And must be subservient to, and supportive of, all the other perspectives created for the business unit.

It could be argued that software quality attributes to do not warrant their own perspective as they are merely a specialized form of internal business process objective. For some organizations this may be the case. But given the cost of software systems, the increasing reliance placed on them by businesses, the risks associated with failure and the alarming frequency with which they do fail. I believe software quality attributes deserve special attention. In particular many problems caused by continuously changing business goals and objectives can be identified and managed with this approach. Identifying and traking the changing relationships between strategic objectives, of different perspectives, at various levels, within an organization is difficult. It requires the support and active participation of all parties, it is a political and organizational process as much as it is a technical one. Fortunately the process of consensus building within an organization is not the subject of this article.

When the new Libyan president of the United Nations Human Rights Commission, Najat Al-Hajjaji, made her inaugural speech at the opening of the 59th session of the Commission in Geneva on 17th March 2003 she was interrupted by six activists from Reporters Without Borders who threw leaflets into the meeting room. (Reporters Without Borders are also known as Reporters san Frontieres or just RSF)

Reporters without borders leaflet

As a result the pressure group may have its UN consultative status suspended. The way this harsh punishment has been decided and the process that led to this decision is farcical and sets a precedent that should not be allowed to stand.

The chair of the United Nations Human Rights Commission Committee usually rotates between various regional groups. The regional group who’s turn it is nominates someone and that person is unanimously elected by acclamation. At least that’s the way it worked for 46 years until South African Sipho George Nene nominated Libyan Najat Al-Hajjaji for the job. The Americans were not happy with the choice due to Libya’s poor human rights record and insisted on a vote. The charter of the commission required a secret ballot that was duly conducted on January 20th 2003.

The 53 members of the committee voted as follows.

  • 33 In favor of Najat Al-Hajjaji as president -17 Abstained -3 Against

The Third World Network an independent non-profit network involved in issues relating to development and the Third World reported:

South Africa’s Sipho George Nene, who had proposed the name of Ms. Najat Al-Hajjaji for the chair, in a statement before the ballot (which the US had requested) said that the Commission and the African Group had been placed in a difficult and unenviable position. It was regrettable that the US delegation had opted for the extreme method of demonstrating its non-endorsement of the African Group’s candidate. The decision to propose Ms. Najat Al-Hajjaji’s name had been taken by the highest political organ of the African Union. The group hence had no choice but to respond to the political challenge posed by the subjection of the election to a vote.

For 46 years, the tried and tested practice of the unanimous election of the Chair of the commission had contributed positively in setting a solid foundation for the proceedings of the Commission. This “reliable practice” had been violated today. But the African group hoped that this unfortunate act would not be emulated in the future. “The rights of regional groups to present candidates of their choice should be respected.” Great efforts had been made to persuade the US to use other available methods to express its displeasure. But these had failed. The African group urged members to demonstrate their confidence in the tried and tested methods of the past by voting for the African candidate with a resounding majority.

Geneva, 20th January 2003 Chakravarthi Raghavan

On the 18th March 2003, one day after the leaflet throwing incident at the opening session, the American representative Jeane Kirkpatrick had the following to say

Some criticism aimed at the Commission overlooks positive steps taken in recent sessions, but the widespread overall impression shared by many is that too many serious and systematic abuses of human rights go unchallenged or even covered-up in this body. The practice of electing the Commission members from some of the world’s worst human rights offenders is especially serious. The cynical resort to procedural tactics to avoid taking a position on human rights abuses has not gone unnoticed and is widely and rightly criticized.

The government and the people whom I have the privilege of representing want the Commission to keep the faith placed in it by the United Nations’ founders when they envisioned the prospect of a body devoted to the promotion and protection of fundamental human rights

Address by Ambassador Jeane Kirkpatrick Head of the U.S. Delegation to the United Nations Commission on Human Rights Palais des Nations March 18, 2003

As a result of the leaflet throwing incident Cuba called for the suspension of RSF’s consultative status for one year. France called for no action to be taken and for due process to be followed which would allow RSF a chance to appear before the UN’s Committee on Non-Governmental Organizations before any action was taken. The committee took a vote on the 20th May 2003. Of the 19 members the voting came out as follows

  • In favor of a ban – China, Côte d’Ivoire, Cuba, Iran, Pakistan, Russia, Sudan, Turkey and Zimbabwe
  • Abstained – Cameroon, Colombia, India and Senegal
  • In favor of no action – Germany, Chile, the United States, France, Peru and Romania

No due process was permitted and RSF were not given a chance to appear before the committee. RSF have pointed out the considerable irony of this result in a press release on their website they say:

All this would be laughable…if it did not show up the decay of the UN system, which has some of the world’s worst human rights violators giving lessons to those who denounce their actions and defend their victims.

On May 30th 2003 Sergio Vieira de Mello, the UN High Commissioner for Human Rights, said he opposes any attempt to exclude Reporters Without Borders from the United Nations by challenging its current observer status. But he cautioned.

As you know, these decisions are not taken by us or by the UN secretary-general, but by a committee in New York that deals with such matters.

To take effect, the move to ban RSF must be endorsed by the UN General Assembly’s Economic and Social Council, which will consider the proposal in Geneva between July 1st and 24th at the ECOSOC session. Who knows what is going to happen then? One thing seems certain to me the UN is broken, possibly beyond repair.

Obviously it can’t be done! It’s like comparing apples and oranges. Corporate revenue and Gross National Income GNI don’t measure the same thing. Double counting is the least of your problems. But plotting them on the same graph is interesting! It gives you a very approximate graph of financial influence for Nations and Corporations. The most recent freely available data is for 2001. So I merged the data from the World Bank and the Fortune Global 100 and then plotted it. And what did I find. Wow, the Enron debacle has to be the largest crime ever! Check this out…

Economies & Corporations

Data Sources

The Fortune Global 500

The World Bank Data and Statistics

Augusta Ada, Countess of Lovelace (1815 to 1852), also known as Ada Lovelace, was the only legitimate daughter of the poet Lord Byron. Raised by her mother she was given private instruction in mathematics and sciences, When she was 17 she met Charles Babbage at a party and became interested in his work on The Analytical Engine, At the suggestion of Charles Wheatstone she translated a French description of the Analytical Engine “Notions sur la machine analytique” by the Italian Engineer Luigi Menabrea. This document was based on some lectures Babbage had delivered in Turin some years earlier. After reading Ada’s translation Babbage suggested she add some notes of her own since she was “intimately acquainted” with the subject. This she did and published her Sketch of the Analytical Engine in 1843.

Ada Lovelace

It was Babbage who called Ada the “Enchantress of Number” although he was probably talking about Mathematics in general or even his own Analytical Engine. There is considerable disagreement about her capabilities and achievements, some believe she was a genius and the first programmer while others believe she was nothing of the sort. Like many, I would like to believe the former but can only find convincing evidence for the latter.

While other visitors gazed at the working of this beautiful instrument with the sort of expression, and I dare say the sort of feeling, that some savages are said to have shown on first seeing a looking-glass or hearing a gun – if, indeed, they had as strong an idea of its marvellousness – Miss Byron, young as she was, understood its working, and saw the great beauty of the invention.

Sophia De Morgan – Wife of Ada’s mathematics tutor

Quote taken from The Difference Engine. Charles Babbage and the quest to build the first computer by Doron Swade

There is one subject ancillary to Babbage on which far too much has been written, and that is the contributions of Ada Lovelace. It would be only a slight exaggeration to say that Babbage wrote the “Notes” to Menabrea’s paper, but for reasons of his own encouraged the illusion in the minds of Ada and the public that they were authored by her. It is no exaggeration to say that she was a manic depressive with the most amazing delusions about her own talents, and a rather shallow understanding of both Charles Babbage and the Analytical Engine…To me, this familiar material [Ada’s correspondence with Babbage] seems to make obvious once again that Ada was as mad as a hatter, and contributed little more to the “Notes” than trouble… I will retain an open mind on whether Ada was crazy because of her substance abuse… or despite it. I hope nobody feels compelled to write another book on the subject. But, then, I guess someone has to be the most overrated figure in the history of computing

Bruce Collier – Former Assistant Dean Harvard College and Babbage Historian

Quote taken from The Difference Engine. Charles Babbage and the quest to build the first computer by Doron Swade


The Assassins

The Assassins or Ismailis were a fascinating, enigmatic people that used assassination, and the fear of it, as a political weapon. Their influence was felt throughout the Islamic world for 2 centuries and in the 13th century extended as far as Karakorum, the capital of the Mongol empire. The Mongols targeted them for destruction in 1256 and within a year they were eradicated.

I’ve been curious about the Assassins for some time, largely because the Mongols were so systematic in the way they set about destroying them. This book is one of the few books on the subject written by a scholar that is currently in print. The first few chapters explain how Europe gradually came to understand who the Assassins were. Lewis does a good job of explaining how layers of misinformation and second hand, often biased, reports were gradually stripped away as contemporary texts, sometimes written by the Assassins themselves, were discovered and translated.

The middle chapters of the book are a monotonous recitation of dates, names, places, and events with little analysis or explanation. This type of history I find unbearable it is data but it is not information! I have heard that Lewis’s other book What went wrong is similarly unreadable. I could understand this approach if the book were liberally scattered with footnotes and references to source documents, it would at least be useful to historians if this were the case. But it is not, Lewis expects us to take his history largely on faith since he provides few ways to validate his claims.

If you manage to survive the boredom of the middle chapters and reach the final chapter Lewis provides a brief analysis of the Assassins place in history their methods and goals. Unfortunately by this point he’d lost my interest.

In general I find Lewis’s analysis unconvincing. I must confess I do not know this period of History, which is why I bought the book, but there were a few occasions when Lewis drew parallels with events I do have some knowledge of and this was enough to destroy my faith in the breadth of his knowledge and the quality of his analysis. A few examples:

Page 129 In one respect the Assassins are without precedent – in the planned, systematic and log term use of terror as a political weapon. The stranglers of Iraq had been small-scale and random practitioners, rather like the thugs of India, with whom they may be connected.

The Thugs were an Indian cult that worshipped the goddess of destruction, Kali. They allegedly strangled more than one million travelers. Hardly “small scale and random”! Even if you believe, as some people do, that the thug threat was exaggerated by the British for political purposes, it is still a bad example precisely because of the confusion.

Page 91 The Ismailis in their castles might well have been in a position to offer sustained resistance to Mongol attacks – but the new Imam decided otherwise.

I find this hard to believe. If the Assassins had been able to resist the Mongols they would have been unique. No one in China, Korea, Russia or Europe managed to offer “significant resistance” to the Mongols. If the Assassins were different Lewis does not explain why. Within a year the Mongols had not only beaten the Assassins they had eradicated them.