The third thing I don’t like about it is this:

CHALLENGE 3: The Balanced Scorecard is not a performance measurement methodology.

How dare I utter such a blasphemous suggestion!

But I truly believe it. The Balanced Scorecard is, in my book, far more a strategy design methodology than a performance measurement methodology. And here’s why: A performance measurement methodology has to go much further than just suggesting how to determine a balanced and cause-effect linked strategy.

A performance measurement methodology has to help you design and implement and use performance measures, too:

1. It has to help you find meaningful measures, particularly when the strategies seem at first to be immeasurable. There are many Balanced Scorecards that are filled with lame, vague measures when they don’t have to be.
2. It has to help you nut out the details of your measures, so they can be implemented as intended. Too many of our performance measures are poor substitutes for what we originally intended them to be, because not enough thought went into the appropriate calculation and data requirements.
3. It has to help you analyse and report your measures so they clearly and engagingly tell the story of actual performance.
4. It has to help you engage people to measure performance willingly and honestly, and as easily as possible so the measures have the best chance of truthfully telling the story of performance.
5. It has to help you validly interpret the quantitative information that the performance measures are providing, so decisions are based on patterns and trends instead of knee-jerk reactions to individual points of data.

The Balanced Scorecard does nothing to help you with these challenges. It isn’t a performance measurement methodology – it’s a strategy design methodology.

But before you think I’m on a one-woman mission to bag the bejesus out of the Balanced Scorecard, let me say this: I don’t advocate you don’t use it, I just want you to be aware of its limitations despite its popularity, and make sure you take from its strengths and compensate for its weaknesses.

TAKING ACTION:
Do you have a step-by-step performance measurement process to populate your Balanced Scorecard with meaningful measures, and then implement and use those measures to execute and achieve the strategy implied by your Balanced Scorecard?

The second thing I don’t like about it is this:

CHALLENGE 2: The Balanced Scorecard perspectives are too limiting.

The four perspectives that comprise the Balanced Scorecard are Financial, Customer, Internal Business Processes, and Learning and Growth. And these four perspectives work in a cause-effect flow, from Learning and Growth up through to the Financial perspective.

The idea is that you design your strategy across these perspectives, and you choose measures (KPIs) aligned to this strategy, and hence you have your Balanced Scorecard.

Do Four Perspectives Developed Over 15 Years Ago Still Apply?

In an age where social responsibility, environmental responsibility and systems thinking are driving much of our thinking about what matters in managing organisational success, I struggle to accept that all that matters in a strategy can fit into the Balanced Scorecard’s four perspectives.

And indeed, in the numerous situations where I’ve seen the Balanced Scorecard used, that’s exactly the way people behave: they try and fit their strategy into it. Alternatively, they create their own perspectives, often around Critical Success Factors that emerged from their business scanning and SWOT analysis.

Alternative Ways To Design A Corporate Strategy.

One model I really like is designing perspectives around key stakeholders (like customers, shareholders/owners, strategic partners, employees, and the community) and their definitions of the value the organisation or company provides them. It’s a great model if social responsibility is important to, at least as much as profit is.

The Performance Prism is one such stakeholder model.

Another model that’s quite common is TBL or Triple Bottom Line, which moves away from profit as sole definition of organisational or company success and brings in a new idea of balance with the People and Planet bottom lines companioning the Profit bottom line.

Perhaps if you apply some systems thinking, examine your internal and external business environments, and take your SWOT analysis seriously, you will see what really matters for your organisation’s or company’s success. And if you then explore how each business process and function impacts those strategic results, you’ll more naturally cascade the strategy.

One More Challenge…

In part three of this series, I’ll discuss the final thing I don’t like about the Balanced Scorecard, and again will suggest some tips for compensating for this challenge.

TAKING ACTION:

In using the Balanced Scorecard, what important results are you ignoring because they don’t fit? What results are you focusing on and measuring, because you think you should have something in each of the four perspectives of the Balanced Scorecard? Let’s continue the discussion, at the Measure Up blog!

Certainly, on account of the Balanced Scorecard, we’re now seeing the measurement of non-financial results rather than just the financial, and we’re seeing strategies laid out in logical and cause-effect linked plans designed for execution rather than shelving.

But a few challenges continue to baffle those that embrace the Balanced Scorecard way. One of the challenges is easy and quick to remedy within the current Balanced Scorecard theory. But the other two, I believe, require a more radical re-think.

In this first part of a three part series, we’ll look at one of those challenges that does indeed need a more radical re-think.

CHALLENGE 1: The Balanced Scorecard is hard to cascade meaningfully.

You might argue with me on this point, because part of the Balanced Scorecard’s claim to fame is it’s focus on strategy execution and cascading strategy to operational levels. But those famous four perspectives that were the revelation of this framework are also the limitation on meaningfully cascading strategy.

What Happens Is “Mini-me” Syndrome.

I call it the “Mini-me” syndrome (inspired by the Austin Powers movies), where what ends up being cascaded are localised scaled-down copies of the corporate scorecard. Each department or team has the same perspectives as the corporate scorecard, almost the same strategy map, but tailored to the scope of their work.

If injury reduction is in the corporate scorecard, then every department and team has injury reduction in their scorecard: even those departments where injury risk is infinitesimal. If cost reduction is in the corporate scorecard, then every department or team has cost reduction in their scorecard: even those departments (like Human Resources or Process Improvement, whose costs must increase in order for other areas’ costs to decrease.

That’s not true cause-effect thinking, and it leaves many managers and employees bemused and cynical about having to measure things that don’t really matter to them, and that don’t really focus on their specific and unique contribution to the corporate direction.

Additive Thinking Is Not Cause-Effect Thinking.

When the focus is on maintaining the four perspectives in everyone’s scorecard to link up to the corporate scorecard, the attention has moved away from where it needs to be: focusing on the performance results and process improvements that have the highest leverage to achieve the corporate strategy.

What happens instead is a collection of additive scorecards, where you can add up or combine the metrics from scorecards across the departmental tier, and end up with the values for the corporate scorecard. Likewise, you could add up the add up or combine the metrics from scorecards across teams within a department, and end up with the values for the departmental scorecard. This isn’t cause-effect thinking. It’s additive thinking.

Cascade True Cause-Effect, Not The Scorecard.

To apply true cause-effect thinking, we have to let go of structure. We have to openly explore and analyse how the performance of a part truly does impact on the performance of the whole. The four perspectives of the Balanced Scorecard don’t encourage that open exploration and analysis, and that’s why we have the Mini-me problem.

I haven’t found a sensible and easy way to help departments and teams cascade the Balanced Scorecard in a way that’s sensible for them and truly aligned to the corporate direction. Instead, we use a more open approach called Results Mapping, which encourages them to start with a conversation about the corporate direction (or scorecard) and explore the question “How and where do our results and our processes most impact on the corporate direction?”

Two More Challenges…

In parts two and three of this series, I’ll discuss two more things I don’t like about the Balanced Scorecard, and suggest some tips for compensating for these challenges also.

TAKING ACTION:

Where are you trying to cascade the Balanced Scorecard? Is it making sense to the teams it is cascading to? Is there anything in their scorecard that isn’t really that important, or anything missing that actually is important? What questions are you asking to guide the way that strategy is cascaded in your organisation or company?