The Balanced Scorecard is Not a KPI Measurement Toolby Stacey Barr |
The Balanced Scorecard was the turning point for measuring non-financial performance. But that doesn’t mean it’s a KPI performance measurement tool.
Implementers of the Balanced Scorecard find they end up with too many KPIs in the tangible parts of their scorecard, not enough KPIs in less tangible parts of their scorecard, and altogether not measuring meaningful results. Why does this happen?
It’s fundamentally because the Balanced Scorecard is 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 set of KPIs that align with a cause-effect-linked strategy.
Thankfully, some leaders in the Balanced Scorecard world do talk about how to develop KPIs. A lot of them have adapted their ideas from PuMP, because they also recognise this limitation with the Balanced Scorecard methodology.
A performance measurement methodology needs more.
It’s not enough to say we need a balanced set of KPIs. It’s not enough to say that balance means mapping those KPIs across four perspectives. A performance measurement methodology has to help you design and implement and use performance measures with much more specific detail:
- 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.
- 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.
- It has to help you analyse and report your measures, so they clearly and engagingly tell the story of actual performance.
- 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.
- 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 mission to discredit 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. That way, you can make sure you take from its strengths and compensate for its weaknesses.
So let’s dive a bit more deeply into the primary reasons why the Balanced Scorecard is not a KPI or performance measurement methodology…
The Balanced Scorecard doesn’t put enough emphasis on result-oriented measures.
The primary building blocks of the Balanced Scorecard are:
- the four perspectives of financial, customer, internal business process, and learning and growth (sure, others add or modify the perspectives these days)
- the strategic objectives that populate and link through each perspective on the strategy map
- the measures that link to each strategic objective
Most people express their strategic objectives as vague, jargon rich actions, like ‘enhance customer experience’. I’ve even been taught by Balanced Scorecard professionals that the strategic objectives are supposed to be kept very broad, concise and high-level!
But this directly creates the struggle to tease out the specific and tangible results implied by these strategies. Because of this vagueness, people end up measuring what is easy to measure: progress against planned activity, the reaching of milestones and whatever else they have data for. The performance indicators focus on activities like ‘develop target markets’ and ‘upgrade staff competencies’, not outcomes.
The Balanced Scorecard doesn’t provide the steps to design the measures.
Bordering on prescriptive, the Balanced Scorecard literature offers ideas for measures to use, for specific strategic objectives typical of each of the four perspectives. Functionality. Brand Image. Relationship.
But these terms mean such different things to different people in different organisations, so to measure them meaningfully takes more thought than brainstorming or copying from a book. It takes a thinking process that extends from an intimate understanding of the result that needs measuring, and this often requires climbing out of mental ruts like “this isn’t measurable” and “we don’t have the data”.
The Balanced Scorecard doesn’t show the process to implement the measures.
Populating a Balanced Scorecard with measures assumes that the populating process is obvious and straightforward. Select some employee KPIs, marketing KPIs, customer experience KPIs, sustainability KPIs, or digital transformation KPIs. Then give the IT department the brief to report them. “Add customer retention to the scorecard, thanks!” is just too brief.
You can’t ignore the many details that can (and do) make the difference between measuring what’s easiest versus measuring what was meant to be measured. There are many subtleties to measuring something like customer retention, which need to be drawn out into a full definition, from which the measure can successfully be brought to life.
Use the Balanced Scorecard for its intended use: as a strategy design framework.
The Balanced Scorecard is not all bad – it has already gone down in history as the serious beginning of non-financial performance measurement in the corporate world. And its heart is really the roadmap for linking the day-to-day to the longer-term strategic direction. And it does this through deliberate conversation about strategy design. But it’s not about performance measure design and implementation.
The Balanced Scorecard is just not designed to stand alone as a performance measurement tool. To select truly meaningful measures for your scorecard – beyond the traditional profit, customer satisfaction and employee turnover – you need to learn a way of thinking about measurement that Kaplan and Norton didn’t address.
To make your scorecard a success, couple the strategic design and translation power of the Balanced Scorecard with a deliberate performance measurement process like PuMP.
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?
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