The Balanced Scorecard Doesn’t Properly Cascade and Align KPIs

by Stacey Barr |

Balanced Scorecard Strategy Maps are popular, but they are not the best way to properly cascade and align KPIs throughout an organisation.

The four perspectives that comprise the Balanced Scorecard are Financial, Customer, Internal Business Processes, and Learning and Growth. Credit: https://www.istockphoto.com/portfolio/annatodica

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:

  1. 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.
  2. 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:

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