Chapter 5
Utilizing the Consulting Scorecard for the Practice
A key factor in managing a successful consulting practice involves utilizing an effective performance measurement system. The internal consulting scorecard represents a best practice approach to assessing performance utilizing a balanced perspective of both “lead” and “lag” indicators to help achieve long-term value creation.
Feedback received from highly successful internal consulting organizations indicates that they utilize a formalized “scorecard” approach to measuring the performance of their organization as a whole. This is a macro view of the consulting practice. These performance measurement systems have traditionally included four main areas (financial, customer/client, consulting operations, and employee/consultant) with the innovation area gaining additional attention. The scorecard for the consulting project is a micro view and is discussed in the next (and subsequent) chapter.
In recent years, there has been much interest in developing documents that reflect appropriate measures in an organization. Scorecards, such as those originally used in sporting events, provide a variety of measures for top executives. In Kaplan and Norton's landmark book, The Balanced Scorecard, the concept was brought to the attention of organizations. Kaplan and Norton suggested that data be organized in four categories: process, operational, financial, and growth.1
Scorecards come in a variety of types, whether it is Kaplan and Norton's balanced scorecard or some other kind. Regardless of the type, top executives place great emphasis on the concept of scorecards. In some organizations, the scorecard concept has filtered down to various functional business units and each part of the business has been required to develop scorecards. A growing number of internal consulting practices have developed the scorecard to reflect the contribution of consulting to the business.
The scorecard approach is appealing because it provides a quick comparison of key measures and examines the status of consulting in the organization. As a management tool, scorecards can be very important to shape the direction of the consulting investment and improve or maintain performance of the organization through the implementation of preventive programs.
Several scorecard options exist. Here are a few options that represent different approaches and philosophies for scorecard development. Each has its unique advantages and disadvantages and the list is typically presented in terms of the efforts required to produce them.
Basic IPO Scorecard
One approach is to examine consulting from the perspective of inputs, processes, and outcomes (IPO). As shown in Figure 5.1, the basic IPO scorecard shows inputs such as projects, participants, and money. These inputs are used in a variety of processes to show activity, progress, implementation, and the ultimate outcomes in simple, easy-to-connect-to measures, such as sales, productivity, and job engagement. This approach quickly shows the relationship of input to output, and is a simplistic approach to the process.
Figure 5.1 Tools to Analyze Gaps
The Balanced Scorecard Process
Figure 5.2 shows balanced scorecard categories where human capital measures are shaped into the Kaplan and Norton categories. While this process provides a little more perspective than that contained in the simplistic IPO approach, it is still sometimes awkward to implement. Not all consulting issues fit into these categories and the scorecard fails to offer the kind of balance that may be needed.
Figure 5.2 The Kaplan and Norton Balanced Scorecard
The Causal Chain Scorecard
Figure 5.3 represents a more comprehensive approach, one possessing seven categories of data and reflecting the causal chain of impact that usually takes place in consulting projects. The categories move from inputs to the financial results—ROI. These seven categories represent important measures to the organization, include all types of data (from qualitative to quantitative), and are taken from various perspectives.
Figure 5.3 Scorecard Categories Organized by Causal Chain of Impact
The first category—input—shows the scope and the volume of consulting. It divides individuals and projects into a number of categories and tracks their involvement in a variety of activities and the number of hours they spend in different projects.
The second category focuses on costs of consulting projects. The costs are tracked by project, employee, and functional area. The total investment in consulting is included in this category.
The third category tracks participant reactions and their degree of satisfaction with the consulting. This is a critical measure where feedback is obtained about specific projects and information is collected on issues such as relevance, importance, and need.
The fourth category tracks and monitors the learning that takes place in consulting projects and usually involves knowledge and skill gains. This is done in such a way as to show an organization's capabilities. Issues related to readiness are included in this category.
The fifth category, application and implementation, measures processes in place and the degree to which consulting solutions are working effectively. This is similar to the Kaplan and Norton process category but can be much broader.
The sixth category considers impact, particularly impact in the organization as a consequence of the various projects. It may include measures such as sales, productivity, accidents, quality, turnover, and cycle time. The tangible or hard data measures are easily converted to monetary value if the organization so desires. Some measures represent intangible or soft data categories, such as teamwork, image, brand, and reputation. Typically, the mechanisms are not in place to convert these soft data categories into money. Therefore, the measures are purposely not converted to monetary value. However, these intangibles have an important meaning of their own and often drive some consulting solutions.
The seventh and last category is financial results and contains measures to show the payoff of particular projects, including ROI calculations, benefit-cost ratios, and payback period. These measures are usually developed from micro level studies conducted to show the actual cost versus the benefits of a particular solution, as described in later chapters.
These categories are comprehensive and reflect the variety and type of measures linked to consulting in an organization. These measures also reflect the data that are collected to show the impact of a consulting project program. For example, if a retention consulting project creates a solution to improve turnover or termination rate, the success of the solution can be monitored along these seven measures. The following categories would be measured:
- Inputs of the number of individuals involved, the duration of the consulting project, and the time to develop the solution
- Costs of the project and solution and its parts and components
- Reaction from stakeholders to the solution
- Learning and changes in knowledge, skills, and perceptions to make the solution successful
- Application and implementation of the solution
- Impact of turnover reduction. The effects of the solution are separated from other influences. Intangibles connected with the process, such as an increase in job satisfaction, stress reduction, and reduced conflicts, are monitored as well.
- Financial results showing the cost of the consulting solution compared to the monetary value of the turnover reduction
When a consulting project is implemented to drive a particular measure, a profile of success can be developed to include the seven categories of data shown in Figure 5.3. In essence, a micro-level scorecard analysis can be developed for every consulting project and reported routinely. The data from the micro-level scorecard can be integrated into the macro-level scorecard. For example, the reaction to consulting project can be monitored as reaction and satisfaction data. A single measure such as relevance or importance can be reported in a macro-level scorecard. Thus, it is possible to have both micro-level and macro-level scorecards. Ideally, the same types of data are developed as recommended here. The scorecards must be compatible, at least conceptually, for easy integration.
AIMC Scorecard
A fourth option is a blend of the three previous options. This approach, labeled the AIMC (Association of Internal Management Consultant) scorecard, is used by some highly successful internal consulting practices and by many AIMC members. Figure 5.4 shows the scorecard structure with some typical measures. It is described in more detail here.
Figure 5.4 AIMC Consulting Scorecard
Financial Measures
Financial measures have always been a critical measurement area in evaluating the performance of internal consulting groups and establishing the payback of the investment in providing that capability. The most utilized metric in this area of the AIMC scorecard involves tracking the overall return on investment delivered on projects managed by the internal consulting group. Another metric employed by numerous consulting practices consists of a comparison of internal to external consulting fees/costs. Some groups also track the total amount of add-on work to original engagements.
Customer/Client Feedback
This area endeavors to assess the consultants' performance from the point of view of the clients they serve. These metrics are often packaged in surveys either at the end of an individual project or periodically covering all of the projects managed or supported by the consultants. Specific areas of input include the following:
- Degree to which key objectives were achieved and expected benefits realized
- Timeliness of completion
- Assessment of the performance of the consultants involved
- Assessment of the quality of the consulting process, such as the following:
- Effectiveness of contracting phase
- Engagement and performance of the project team(s)
- Ability to meet client needs and resolve issues
After-action review sessions are also utilized to gain more in-depth client input and help to gain additional insights. Client/customer loyalty is also often assessed by tracking the percentage of repeat business.
Internal Consulting Operations Measures
This category of measures often involves a variety of measures aimed at assessing the overall quality and rigor of the internal consulting group's operating processes. One area often includes the positioning of the consulting practice and involves tracking the percentage of the consultants overall project portfolio considered to be strategic versus tactical in nature. This helps to indicate the degree to which the consulting practice has been able to gain executive sponsorship and trust in supporting those initiatives most critical to the organization. Other metrics, focusing on the state of the consultants' operational process development include the following:
- Percentage of large projects with formal contracts
- Percentage of engagements where a consistent/standardized set of methodologies was utilized
Another area of measurement endeavors to track the degree of involvement of the consultants in projects/initiatives of which they are aware. The specific metrics often utilized assesses the following:
- The percentage of total engagements served directly
- Versus those coordinated with outsourced resources
- Versus those with no involvement by the internal consultants
Consultant Development
In any consulting organization, internal or external, the employees are the most important asset. Therefore, the employee/human capital aspect of their performance measurement is a critical component and also a key lead indicator of future performance. One popular metric here involves consultant satisfaction and alignment. Often administered through a survey tool, this involves questions regarding current job satisfaction and comfort level with development plans and career pathing. A key aspect of this feedback involves an assessment of the consultants' alignment with the positioning and direction of the overall internal consulting group. This involves questions about agreement with the goals, approach, and support provided by the organization.
Another key metric utilized involves tracking the percentage of employee development plans that are executed as planned. It is important for consulting practice to set aside time for consultant development and stick to it even when heavy client demand exists.
A third important metric involves tracking the percentage of target competencies realized. This is preceded by the development of a target competency framework for the overall internal consulting group with desired skills and proficiency in each for every position in the group. The measurement then assesses the gap-closing trend over time.
A fourth area involves monitoring the number of 360-degree assessments conducted for both individual contributors and leadership in the group. This helps promote comprehensive feedback on performance coupled with improvement plans.
Innovation and Business Development
This final major area of performance measurement and management first involves tracking and promoting initiatives to foster a continual stream of innovation in the consulting practice and spread that knowledge throughout the organization.
The first frequently used metric here focuses on the percentage of projects utilizing methodologies recently incorporated by the group (such as in the last 12 months). This helps to focus the consulting practice on continually monitoring emerging tools and techniques, including supporting technologies, to help them do their jobs better and open up new areas of practice.
Another supportive metric is tracking the number of external presentations and publications generated, which helps to stimulate an emphasis on thought leadership. A third related metric utilized by the more well-developed consulting practices involves assessing the percentage of consultants considered thought leaders in their areas of practice (often included in the 360-degree feedback).
The second major area of this measurement category involves tracking the consulting practice's business development efforts. One metric utilized here, often tied to the consulting practice business plan, involves tracking the number of projects with new client groups in the past year.
Another business development-related metric involves tracking the number of projects where consulting skills are transferred to project team members in client organizations. This helps to create an internal network of contacts who often refer additional projects to the consulting practice.
Additional research on leading performance measurement and management programs for internal consultants is contained in Dr. Trotter's book Internal Consulting Excellence.2
Using the Scorecard
Important reasons for having a scorecard are to manage consulting effectively, optimize the status of consulting, and drive continuous improvement in the use of consulting. Because of this, continuous monitoring and action is required when necessary. The consulting practice will be responsible for monitoring the data and recommending or reporting actions to keep measures where they are or to improve measures that are unacceptable. However, executives should be actively involved in the process. It is too important to delegate this responsibility entirely to the consulting practice. The involvement and commitment of the senior team is essential to ensure appropriate actions are taken and those actions are monitored to check the progress being made. Figure 5.5 shows all the steps needed to drive improvement with the use of scorecards.
Figure 5.5 Using the Scorecard to Drive Improvement
Select the Measures
Earlier in this chapter, specific recommendations for selecting the measures were presented. It is important for all key stakeholders to agree on the measures, so the concerns of the consulting staff and the senior executive team are balanced. After the measures are selected, the format for presentation is determined so that data are routinely, if not instantaneously, available to the management group and the consulting staff.
Set the Target
For each measure on the scorecard, specific target (performance) levels need to be established for almost all measures. The first target level is the minimum acceptable level. This may be developed through operational requirements and guidelines, or perhaps even through benchmarking or industry standards. Anything below this level would be considered unacceptable. Another target could be best practice, which may be above average for the industry or a measure that is found only in best-practice organizations. Finally, targets can be set that represent stretch goals, which only an exceptional performance will deliver. These stretch goals are the measures that truly build excellence in organizations and high-performing consulting groups, exceeding what best practice normally requires.
The typical approach is to set the levels at one of the three targets and take action whenever one of the measures falls below one of the targets, or take action when it is necessary to stay at a desired level. For example, in one organization, action is taken to move a measure to best practice. When best practice is reached, preventive action is needed to keep it at that level. Other kinds of action are needed to move it to a stretch-goal level of performance.
Monitor the Data
Scorecard data can be monitored in a variety of ways depending on the desires of the executive team and the feasibility of presentation. The old way is to send detailed paper-based reports to executives for review and analysis. Brief reports are better; scorecards are much better. In some cases, data are linked to a website where an executive can monitor it at will. The scorecard has drill-down capability to get more detail about a particular measure and its status including trends, forecast, benchmarking comparisons, and so on.
Executives may receive e-mail reports highlighting particular measures, comparing those to target levels, goals, benchmarking data, or other important comparisons. These are sent with routine operational and financial data for the executive.
Still other organizations have color-coded reports where various colors represent different issues. For example, measures that are not doing so well are colored red, while those that are considered to be exceptional and may even be a stretch goal are shown in green. These allow for quick review and often look like scorecards so executives can quickly see that things are okay or that there are signs of trouble.
Conduct a Gap Analysis
Perhaps one of the most difficult, yet critical, issues is to determine what is causing a gap in a specific measure. If a current measure is less than the desired target, this should be cause for concern. The challenge is to determine the cause of the gap so that appropriate, remedial actions can be taken. Collecting the appropriate data to understand the cause is important. Some causes may be obvious; others may be elusive. In some situations, both the problem and solution are equally apparent. A variety of diagnostic tools may be necessary to uncover the exact cause. While several diagnostic processes are available, the following shows an initial list of tools for this type of analysis.
Tools to Analyze Gaps
- Demographic analysis
- Diagnostic instruments
- Focus groups
- Probing interviews
- Employee surveys
- Exit interviews and surveys
- Nominal group technique
- Brainstorming
- Cause-and-effect diagram
- Force-field analysis
- Mind mapping
- Affinity diagrams
- …among others
Identify/Select Action/Solution
The consulting staff is sometimes creative with their approach to the gap analysis, and this results in dozens of solutions that create unintended confusion. While there are specific actions to improve the situation, the challenge is to select the most feasible solution for the organization. This subject is beyond the scope of this book, but a variety of solutions are available. At this stage of analysis, it is helpful to ensure that a range of possibilities is identified and a proper one is selected.
Implement Action/Solution
This step goes hand in hand with the previous one. After the appropriate action or solution is selected, it must be implemented over a predetermined time period to tackle the problem. When attempting to implement the solution, it is important to consider resources, planning, data collection, and reporting.
Forecast the Value
An optional step is to forecast the value of the solution or action, including the impact and ROI. This forecast allows the team to establish priorities, work with a minimum number of solutions and actions, and focus on the solutions for the greatest forecasted return on investment. Forecasting can be difficult, challenging, and even risky. As much data as possible must be accumulated to verify the estimate and build credibility for the process. This step should be reserved for only those solutions that are considered expensive, time consuming, highly visible, or, perhaps, even controversial. Ideally, the forecast should contain an expected return on investment value. This is perhaps one of the most difficult parts of the process and is described in other publications.3
Monitor the Progress
Because the gap analysis is conducted only with those areas where the measures are below the target, it may be useful to outline the progress made in these areas. Progress reporting can be conducted either along with the scorecard report or in a report by itself. A progress-in-action report is often generated to complement the human capital scorecard. In web-based scorecards, actions and their progress are detailed when the executive clicks on a particular measure. The detailed information indicates what, if any, actions are in progress, the status of those actions, the estimated completion date, and, if applicable, the forecasted value from the project.
Show the Value
Another optional step is the actual calculation of the impact of the solution to close the gap. This step is often skipped because it can be difficult and time consuming. However, if the solution is very expensive, has a high profile, involves a large number of employees, and perhaps is controversial, it may be beneficial to show the value of the solution. This brings the ROI methodology, described in later chapters, into use to measure the payoff of a particular human capital project. In this context, the project or program is designed to change the measure that is out of alignment.
Repeat the Process
The process should be repeated, making any necessary adjustments in the measures, adjusting targets, monitoring the data, and following the other steps. The improvement process is continuous—the scorecard provides the data and the challenge is to manage it in a proactive way that continues to improve the status, capability, and success of consulting.
Role of External Consultants
It is important for externals who wish to work well with internal consultants to learn about their performance measurement system. This will enable them to align with their key metrics on project work in which they are endeavoring to participate—thereby improving chances of both getting the initial work and developing an ongoing relationship. In addition, they can provide valuable insights into how to effectively manage key project value assessment metrics, such as return on investment and customer satisfaction—particularly for internal consulting groups in their early stages of development.
Final Thoughts
This chapter focuses on utilizing a consulting scorecard as a best practice approach for assessing performance with a balanced perspective. The various types of scorecards are discussed, along with categories of data, metrics, and measures for reporting progress and outcomes. The importance of developing scorecards to meet the needs of the organization is reviewed. The importance of the executive team's collaboration with the consulting practice staff is highlighted. The chapter concludes with a recommended process to utilize the scorecard to set targets, identify gaps, and implement solutions. The next chapter discusses a micro scorecard, the ROI methodology.