As the banking industry continues to adapt to the unprecedented pace of change, managing people is becoming increasingly more challenging. The old performance measurement criteria, traditionally used to link rewards to return-on-asset performance, are no longer effective in channeling employees' energies in the direction the new banking industry needs to take them.
The challenge facing most banking companies today is the transition into a marketing organization, a retailer of financial services. In order to do that, individual goals at every level must be set, since goal attainment is an important motivating tool in a sales culture. Without such a tool, employees wander directionless without knowing whether they have achieved success or not.
The "scorecard" is a tool designed to fill this new need to define success at various organizational levels in such a way that if performance specifications on the scorecards are achieved, the company as a whole will achieve or exceed its performance goals.
We have often witnessed excellent performance measurement programs that did not accomplish what they set out to do. In fact, we have seen banks where over 60% of the employees exceed their performance objectives, yet the company's performance is lackluster. Such incongruity is unacceptable in today's environment when it is essential to mobilize every single employee toward the same direction.
In the banking industry today, such an approach also could be appropriate. Some bank pioneers in the business, like Integra Financial Group, for example, have already undertaken the development and implementation of scorecards throughout its system in order to assure that all company employees understand how they can personally contribute to corporate-wide success.
The characteristics of successful scorecards are as follows:
* Simplicity. Scorecards should not be complex, cumbersome documents. A one-page or two-page scorecard is all you need in order to clearly communicate to employees what really counts.
* Specificity. Scorecards must contain specific, quantifiable objectives, which may range from a threshold level to an outstanding performance level. Specificity is essential to success, since vague objectives are rarely accomplished.
* Financial and nonfinancial goals. Many performance measurement systems are comprised solely of financial objectives. However, in order to meet today's marketing transformation challenge, goals such as sales per square foot, revenue per employee, and others are at least as appropriate as financial goals and must be included in the equation. In addition, in recognition of the value of human resources as the single most important resource of every bank, quantitative objectives regarding human resource management, motivation, and retention should be an integral part of a scorecard.
* Long and short-term objectives. With stock market pressures, many companies succumb to quarter-by-quarter measurement, thereby shortchanging their strategy. A good scorecard needs to address both short-term and long- term performance, assuring that the future is not mortgaged for the benefit of short-term earnings.
* Signaling what's important. A scorecard must have weights that are attached to each major performance category. The weights signal management's view of what is critical to success. That view changes over time. In a troubled company, credit quality often receives the highest weight. As credit quality is repaired, its importance in the company's future subsides into a "business as usual" category from "essential to survival" status. The weighting system is designed to accommodate that transition.
* Include key performance indicators. The purpose of a scorecard is not to substitute the job description. Management uses the scorecard to signal changing priorities. Those do not mean that business as usual is unimportant; however, business as usual is part of the basic job description. While it should not be neglected, it does not need, in many cases, special highlighting in the scorecard.
* Linking incentive compensation. One of banking's traditional woes is that the difference between the poorest performer and the best performer was insignificant. This characteristic must be eradicated from banks' compensation systems as they transform themselves into marketing organizations. Accordingly, the scorecard needs to be linked into incentive compensation which provides meaningful differentiation between poor, average, and superior performance.
There are many other important characteristics for scorecards. The key, however, is to indicate to management and employees alike what's important and what's on the strategic agenda. Using scorecards as a management tool focuses everyone's attention on the same goals and mobilizes the total company to march forward as a cohesive marketing organization.