Measuring and improving corporate information technology through the balanced scorecard Wim Van Grembergen
Rik Van Bruggen
UFSIA (University of Antwerp)
B 2000 Antwerp
The BSC method
Evaluation of corporate information technology with the BSC
Applying the IT balanced scorecard
IT balanced scorecard practice
Conclusion: efficiency and effectiveness
The balanced scorecard (BSC) is a recently developed strategic management system that should allow businesses to drive their strategies based on measurement and follow-up. These measures are divided into four domains: financial achievements, customer orientation, effectiveness and efficiency of internal processes, and innovation and learning. In this article the BSC is applied to the evaluation of IT projects and the IT function as a whole. Also, the relationship with more traditional IT/IS-evaluation methods like Capital Budgeting and Information Economics is pointed out.
The evaluation of the IT function, as with the evaluation of IT investments, remains the subject of many academic and business discussions. In IT issues-studies - where managers are asked what they find important in corporate information technology - we can always find this subject under the name "Measurement of IT effectiveness and productivity". In a British study (Galliers et al., 1994), this issue was ranked 9th by IT managers, and in a very recent US publication, (Brancheau et al., 1996) it was ranked 11th. The many publications in scientific journals and the much visited seminars and conferences, also suggest a continued and actual interest. There are reasons for this extensive public interest: IT is increasingly becoming crucial to achieve organisational and strategic goals. Investments in IT are also never ceasing to grow, and business managers worry about the fact that the benefits of these investments might not be as high as initially expected. The industry likes to call this phenomenon the "IT investment-paradox", or the "IT Black Hole". Large sums are invested in IT, and seem to be swallowed by a large black hole without rendering many returns. (Brynjolfsson, 1993 and Peppard and Rowland, 1995). In order to be able to evaluate IT/IS-investments, many methods and techniques have been suggested over the years. More traditional methods focus on financial measures that have long been known: the "return on investment" (ROI), the "net present value" (NPV), the "internal rate of return" (IRR) and the simple and popular "payback time" (PB). These methods suggested the paradox that we mentioned above, and urged researchers to search for alternative ways of evaluating IT related investments. Another approach to the problem is called "information economics" (IE) (Parker et al., 1988 and 1989). This method allows to account for more intangible benefits like a better customer service or a higher degree of competitiveness. It also separates the benefits and risks into two domains (a business domain and a technological domain) and evaluates these domains jointly. And now, the BSC found its way to evaluating IT and its investments. Kaplan and Norton (1992, 1993 and 1996a,b) propose this method in order to evaluate a company’s progress from four different perspectives: the financial perspective, the perspective of internal processes, the client’s perspective and the innovative perspective. This model can also be applied to IT investments and to the IT function, as Gold (1992) and Willcocks (1994) have already indicated in a conceptual manner. In this paper a framework is developed for evaluating IT/IS based on the BSC-technique. This evaluation is confronted with two kinds of tasks. One task lies in trying to assess the contribution of a specific information system or project. The other focuses on assessing the general IT function. It deals with crucial questions like: how good is our...
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