COBIT 5 and The Balanced Scorecard

Oct 2, 2014

It’s always been an interesting and often asked question – where and how do IT Governance and IT Performance Management come together? And more often than not it is precipitated by a question around whether, and if so how, IT Governance can support the governance and performance of the Enterprise…  Fortuitously, there is an integrated business framework for the Governance and Management of Enterprise IT which makes answering these ‘posers’ a simple and enlightening exercise – that is COBIT 5.

Archaic as it may seem, until the 1990s, many Enterprises the world-over tended to direct their primary performance management attention on to the financial measures of the organization, and the short-term focus, as opposed to longer term targets or any foci around the sustainability of the Enterprise. But by the mid-nineties, there probably wasn’t a CEO on the globe who hadn’t heard of the ‘Balanced Scorecard’ (BSC), the performance management system from Kaplan & Norton. Their BSC extended the scope of traditional organizational performance management from financial to non-financial measures, and with that the concepts of the performance of intangible assets, and value creation.

What few realized at the time was that non-financial measures and value creation would become foundational principles in the Governance of enterprises in the years to come, and that a clear link between strategy,  performance management and governance for the organization had unconsciously just been orchestrated. The inference was that organizations could enhance their creation of value and enterprise performance by improving the management of their non-financial, intangible assets, through the integration of these into their existing performance management systems. As the saying goes, if you can’t measure it, you can’t improve it… so in retrospect it seemed inevitable that non-financial measures would emerge as critical to the overall performance management of the enterprise.

The Balanced Scorecard essentially supplemented the sole Financial domain of performance management, with three additional perspectives, which were seen to be the key drivers for the creation of (shareholder) value over the long-term:

-          Customer > asking the question “How do customers see us?”

 

-          Internal (Business Process) > asking the question “What must we excel at?”

 

-          Learning and Growth > asking the question “How can we continue to improve, create value, and innovate?”

Fast forward nearly twenty years, and despite the research and development in the field of performance management, and the rapid evolution of Enterprise (or corporate) governance, step into the boardroom of most Fortune 500 companies today and you are likely to still find the BSC on active duty in one form or another. And so when it comes to IT Governance, it shouldn’t come as a surprise then, to find the BSC entrenched in what is arguably the most comprehensive, generally accepted and in use framework focused on governance and management of Enterprise IT globally – COBIT 5. Ironically COBIT 5 is itself an intangible asset to any organization…

So how does the Balanced Scorecard fit into COBIT 5? 

Well, at the heart of COBIT 5 are five core principles, the first of which is ‘Meet Stakeholder Needs’ and it’s here where one can find the Goals Cascade and ultimately the BSC. In the context of this discussion, simplistically the Goals Cascade is the mechanism which translates the needs of stakeholders into enterprise goals, then translates these into IT-related goals.

In the COBIT 5 Goals Cascade, Stakeholder needs, which are influenced by a number of key drivers, cascade down to Enterprise Goals. In other words Enterprise Goals are defined to satisfy the needs of the organization’s stakeholders. It is at this level in the Goals Cascade that the BSC comes into play. COBIT 5 defines 17 generic Enterprise Goals, which are organized into the four BSC dimensions – Financial (5), Customer (5), Internal (5), Learning and Growth (2).  The relationship of each one of these Enterprise goals to the achievement of the Governance objectives of Benefits realization, Risk optimization and resource optimization is also specifically stated, as either primary or secondary. Each Enterprise Goal then has a number of metrics defined to measure the achievement of the goal itself.

The BSC is therefore used as a framework for both governance and performance management purposes – for Governance by facilitating the relating of each Enterprise Goal to the achievement of one or more of the governance objectives, and for Performance Management by facilitating the definition of metrics to measure the achievement of each enterprise goal.  Each of the four domains of the BSC, as used in COBIT 5, therefore have Enterprise Goals which in turn are related to governance objectives, and each of which has its own metrics.

Once Enterprise Goals are clearly defined, the IT organization can then align its own goals to those for governance, management and performance. The Enterprise Goals therefore cascade down to the IT related goals of the organization. The IT goals of the organization are set and mapped to the goals of the Enterprise, ensuring the overarching alignment of IT to enterprise strategy. As with Enterprise Goals, there are 17 generic IT goals that are also organized across the four BSC dimensions as follows - Financial (6), Customer (2), Internal (7), Learning and Growth (2). And for each IT goal there are a number of metrics defined to measure the achievement of the goal, as is the case for Enterprise Goals.

What COBIT 5 then does, is map all of the Enterprise Goals in each of the BSC domains to all of the IT goals in the corresponding domain, to provide a holistic view in BSC format of all Enterprise and IT goals, per BSC domain. Notwithstanding the integration of Enterprise and IT goals in the BSC, it must be noted that the Evaluate Direct Monitor (EDM) domain within the (IT) Governance area of COBIT 5 focuses squarely on value creation, with processes to ensure that Enterprise IT performance and conformance measurement is in place… By using COBIT 5, and the BSC, the IT organization can directly align to the strategies and goals of the Enterprise, and measure the contribution of IT to the performance of the enterprise.

Example of how Enterprise Goals are grouped into the BSC dimensions:

 

The BSC provides for a balanced, holistic view of the Enterprise, and by using the BSC as a common tool to represent and align Enterprise and IT goals, COBIT 5 has provided an essential snapshot of the total value delivery of Enterprise IT to the organization. Take it a step further and with COBIT 5 incorporating the specification of metrics for each IT goal, one can simply and easily measure the performance of Enterprise IT at any given time. Governance tells us that for its primary governance objective of value creation, organizations must ensure that benefits are realized, and risks and resources optimized, to meet stakeholder needs. Under the realm of IT Governance, using the BSC in IT performance management helps organizations to better understand what the organization is trying to accomplish (Enterprise Goals), it’s IT needs, what Enterprise IT has to deliver for the business, and how to measure its achievement of key metrics for each IT goal.

COBIT 5 is a comprehensive and holistic framework for any organization looking to improve their governance and management of Enterprise IT, and this specifically includes performance management. By setting IT Goals linked to Enterprise Goals, and utilizing the BSC to organize and map these to each other, the modern IT organization is able to support both the governance and performance of the Enterprise. And by ensuring metrics are defined for all IT goals, and measuring their achievement, one is able to ensure that IT governance and performance management are in place. In so doing, aided by the BSC, COBIT 5 is able to seamlessly bring together IT Governance and Performance Management, and the governance and performance management of the Enterprise, for truly synergistic value creation!

 

For information on COBIT 5 please visit http://www.isaca.org/COBIT  and you can get ISACA’s free to download COBIT 5 Toolkit here at http://www.isaca.org/COBIT/Pages/Product-Family.aspx