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.
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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