The Balanced Scorecard Doesn’t Properly Cascade and Align KPIsby Stacey Barr |
Balanced Scorecard Strategy Maps are popular, but they are not the best way to properly cascade and align KPIs throughout an organisation.
We have to applaud the Balanced Scorecard for the evolution it triggered in organisational performance measurement and strategy execution. A few ideas it revolutionised for the business world were:
- a focus on non-financial results, and not just financial results
- building strategy with cause-effect logic
- aligning KPIs to strategy
- taking strategy execution, or implementation, seriously
But no model is without its limitations. Particularly one that is around 30 years old, without significant evolution. A few challenges continue to baffle those that embrace the Balanced Scorecard way. One challenge is to realise it’s not actually a performance measurement tool. Another is that the four perspectives that define it are too prescriptive. But yet another challenge requires a more radical re-think. And it has a lot to do with one of the claimed benefits of a Strategy Map:
“Process improvement programs are like teaching people how to fish. Strategy maps and scorecards teach people where to fish.” – Robert S. Kaplan, co-founder of “The Balanced Scorecard”
But do Strategy Maps really teach everyone where to fish? Not nearly as well as they could.
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 its 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.
Two specific requirements for people to really ‘learn where to fish’ are these:
- Everyone needs to decide which of their unique team results have the biggest impact on the overall organisational strategy, so they know what to improve locally.
- Everyone needs to see how the impact of their improvement actions ripple throughout the organisation, so they can understand the consequences of what they improve locally.
And the reason why the Balanced Scorecard doesn’t properly cascade and align KPIs is because it doesn’t provide the best method to achieve these two requirements. In fact, it can work against them because it promotes a proliferation of ‘mini-me’ Strategy Maps, which also obscure the big picture of the organisation’s strategy.
The Balanced Scorecard can proliferate mini-me Strategy Maps.
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.
This is the risk of the tiered approach used to cascade the Balanced Scorecard’s Strategy Maps to operational levels. Every tier of the Strategy Map has the same perspectives, and often the same types of objectives.
For example, if injury reduction is in the corporate scorecard, then every department and team can end up with injury reduction in their scorecard, including those departments where injury risk is infinitesimal. If cost reduction is in the corporate scorecard, then every department or team can end up with cost reduction in their scorecard, including 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.
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 the metrics from scorecards across the departmental tier and end up with the values for the corporate scorecard. Likewise, you could add up 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. And it takes attention off each team’s highest-leverage contribution toward achieving the strategy.
The Balanced Scorecard obscures the big picture of strategy.
The term “line of sight” is often used to describe the ability to see from one place through to another far away place. Like from a team’s goals through to the ultimate goals of the entire organisation. This line of sight is a visual thing, showing a map of how the team’s goal links through all the intermediary goals that lead up to the corporate goal.
This is another risk of the tiered approach used to cascade the Balanced Scorecard’s Strategy Maps to operational levels. The tiers are not capable of showing, in a single picture, the line of sight for every team.
The risk of tiered Strategy Maps is that teams can become a bit myopic, and only see the goals on their own map or scorecard. And be blind to how their actions impact on other teams and other goals in the organisation.
For example, imagine what could happen if one team’s Strategy Map focused them on reducing the costs and cycle times of machine maintenance (or of research, or of policy development). If they minimised those costs and cycle times, what impact could it have on the teams using the machines (or the research, or the policies)?
Strategic thinking is abstract thinking. And it doesn’t come naturally to most people. Even some leaders aren’t that good at it! So, for strategy to be implemented and achieved, we need to make it clear and specific as possible, and to see our own local part within the whole. Layering it in visually disconnected tiers gets in the way of this.
To properly cascade and align KPIs, try a Results Map instead of a Strategy Map.
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. And the tiered approach to Strategy Mapping doesn’t provide that visual line of sight required to give everyone a clear and single view of how they align to corporate objectives.
Instead, in PuMP we use a more open approach called the Results Map. A Results Map is not the same as a Strategy Map but aims to achieve the same outcomes of a cascaded and aligned strategy, across the width and depth of the organisation.
A Results Map encourages every team 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?”
If you want to explore better ways to cascade and align KPIs, then a few extra how-to articles worth a try are these:
- 2 Ways to Cascade a Measurable Strategy That Creates Alignment
- What Exactly is KPI Alignment?
- How to Align Everyone to Organisational Outcomes
- The Mistake to Avoid to Successfully Cascade Strategy to Support Functions
- Four Keys to Cascading Company KPIs to Individuals
Stacey, you are right on the mark on cascading. Not every department will have an impact on every objective. The key is to be able to show an unbroken path from the actions and the low end of the organization to the objectives at the top.
That unbroken path is spot on, Bob. I suggest that rather than just actions linking to organisational objectives, that it's low end results too – the direct and immediate results of actions, and how those results link up to organisational objectives.
We are using the BSC across a large Area Health Service. Our method of cascading through the organisation is using the Area's strategy map as a template. Measures are for the most part prescribed as well with the result that bye-in is low. Part of the problem has been that the organisation is not sufficiently dedicated to investing in the BSC to allow an effective roll out.
The linear model is so 80s! A systems-thinking approach as you've outlined takes into account how things REALLY operate – in a fluid, cause-and-effect motion. This same approach can be applied to solution-finding, strategic planning, and status quo analysis. Great article!
Gary, buy-in is just so important. I think this is an emerging realisation globally, and as performance measurement practitioners, it's one of the skills we all need to have! I think the days when we could prescribe measures and strategy maps (or model them from the corporate levels) are gone. Thanks for your comment!
I guess part of the mini-me trap is that the more buy-in you get, the more the BSC takes on a life of its own and becomes an end in itself instead of 'just' a measurement tool. I have also found that the maturity of different areas across a large corporation differs greatly – so I think you have to let people experiment a bit with their measures and as long as what they come up with ties into top-level strategy – it's all good. I always say that when we have no bigger problems to solve we will definitely look into ensuring consistency in the BSC – until then – as long as people are using it and talking about it (and hopefully arguing constructively about it) I'm prepared to be more relaxed than most about the measures themselves
We use the BSC and I don't think we do the things you described. The organization's objectives are cascaded down by asking exactly the question you recommend: how does our work support the strategic objectives of the District? The Department objectives and measures are still organized into the 4 perspectives, because they make sense to us. Some top-level measures are additive (from the departments that contribute to those results) but not all. That wouldn't make sense. I think you are describing badly designed scorecards and extrapolating your opinions from there.
Good Point Stacy.
But It is not the fault of Balanced Scorecard but it is the fault of implementation.
If every scorecard is Mini Me, then the number of KPIs are very few in the entire organisation. But in a good implementation, there will be hundreds (or thousands) of KPIs in an organisation indicates they are not Mini Me kind scorecards. The cause and effect may not be in the same scorecard but the effect will be to the scorecard from which it is cascaded.
Injury reduction at one level will translate into safety training and better equipment at the next level scorecard and will be cascaded into other KPIs at the down levels.
So basically it is the failure of understanding of cascading which will result in Mini Mes.
The aggregatable KPIs can be cascaded like Mini Me fashion, but even then one KPI cascaded from top will need more KPIs at lower level to achieve that aggregatable KPIs.
The marketing department does not need all the KPIs of the CEO. It will inherit 3 or 4 from the CEOs score card and they add their own to achieve the cascaded KPIs.
I appreciate your doing the job of educating the people on the right way to cascade but I can not accept that the Balanced Scorecard itself to be blamed
Stacey, the only time that the exact same measures/objectives are "copied" is when you have, e.g. regional sales that roll up to corp total (and it usually doesn't go beyond 2 levels). For the most part, objectives and measures are "translated" into what's meaningful to the business units & depts (ideally with a cascaded strategy map, including higher level objectives that the unit can impact + bottom-up objectives). It does become cumbersome when you have to maintain/conduct separate strategic scorecard/meeting from operational dashboard/meeting. I'd be interested in learning how you link operational metrics directly to strategic objectives. thanks.
Last year, I lead a few key managers to BSC training, at the end of which we managed to produce the corporate strategy map. Unfortunately, we couldn't roll it out because the CEO felt the SBU are "not ready".
Hence, I am not sure if I am "qualified" to comment the cascading or roll-out effects. But, I would like to share some light on what one of the local subsidiaries have done in adapting the BSC dimensions into their performance management.
As you had, rightly, pointed out the measures were cascaded in a "decentralised" manner. All HODs were asked to come out with their own KPI's and this was then rolled downwards to the individual level.
This was rather shocking because the GM and management team had attended two separate trainings under different facilitators. They are from Engineering background, hardly an excuse not to understand the Causal and Effect relationship.
To me, they had missed the essence of the whole cascading top-down & bottoms-up flow:
1. To focus on the "vital few" instead of the "trivial many".
2. Cascading has a snowball effect that could alter the nature, shape and characteristics of the initial requirement or measure.
My own understanding of BSC is that it's a one page road-map that captures the intricate web of financial and non-finacial elements (Objs, CSF, KRA and KPIs) in linking strategy, tactics and actions/results. And, more importantly, it's a "total system" tool that gives clarity of purpose, direction, meaning, reward, motivation and sustainability to all stakeholders to be on the same page.
Ram Charan says, "Execution is the discipline of gettings things done." Unfortunately, in many cases, cascading or more aptly "communicating" remains the biggest challenge.
BSC is every business leaders' and employees' opportunity for mutual development and growth. How could it not work and why would people be not ready or buy-in. Is it a question incompetence or lack of faith?
Thank you for sharing and I look forward to your other 2 setbacks.
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