The Second of Three Things I Don’t Like About The Balanced Scorecard (the perspectives are too limiting)

December 16, 2009 by Stacey Barr

In the first part of this three part series, I posed the first challenge that I face with the Balanced Scorecard: it is hard to cascade meaningfully.

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!

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  1. zoomie says:

    Haven't found the Balanced Scorecard to be much help at all in assessing how we are performing as a higher education institution. We don't serve stockholders and we as a public institution do not earn a profit so cascading to a financial impact end point is rather useless.

    The Triple Bottom Line framework looks more appropriate to how we are approaching strategy building and then tracking how we are improving.

    Would like some comments from other public universities to see if we can build a common reference model.

  2. Chris Blackman says:

    As a long-time practitioner of the Balanced Scorecard and in particular the use of strategy maps to articulate strategy I have always understood the out-of-the-box perspectives and themes are merely suggestions.

    All can be replaced with perspectives and themes more meaningful to the subject organisation.

    The major problem with Balanced Scorecard and the reason so many implementations simply do not work for their owners is this: Hardly anybody knows how to implement it properly.

    Balanced Scorecard when implemented properly leads to deep, careful examination of the organisations true objectives, goals, values, strengths and weaknesses.

    Many managers are unwilling to submit to the kind of detailed self-examination this entails, resulting in ineffective implementation, and ineffective organisational performance.

    Readers may be interested in this article "Why Balanced Scorecard Doesn't Work".

    Executing strategy well is not easy. It isn't simple. It requires hard work. Three reasons, perhaps, why there are so many mediocre organisations out there?

  3. srinivas says:

    Thought Balance score card can take into account more views of the system instead of only 4.

  4. Stacey says:

    I think the Balanced Scorecard creators, Kaplan and Norton, would argue that you can't arbitrarily create different perspectives. They speak about the cause-effect links that exist between the classic perspectives they chose.

    It would be great to see what perspectives would emerge if they were to do the same research and development now, almost 20 years later. Would they produce different perspectives? Or would they be the same?

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