The Third of Three Things I Don’t Like About The Balanced Scorecard (It’s not a measurement methodology)

January 8, 2010 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. And in part two was the second challenge: the Balanced Scorecard perspectives are too limiting.

The third thing I don’t like about it is this:

CHALLENGE 3: The Balanced Scorecard is not a performance measurement methodology.

How dare I utter such a blasphemous suggestion!

But I truly believe it. The Balanced Scorecard is, in my book, 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 and cause-effect linked strategy.

A performance measurement methodology has to help you design and implement and use performance measures, too:

  1. 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.
  2. 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.
  3. It has to help you analyse and report your measures so they clearly and engagingly tell the story of actual performance.
  4. 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.
  5. 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 one-woman mission to bag the bejesus out of 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, and make sure you take from its strengths and compensate for its weaknesses.

TAKING ACTION:
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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  1. Kevin Ryan says:

    Hi Stacey,

    I do agree. Most Balanced Scorecards (BSC) I see aren't Balanced Scorecards at all. BSC is a strategy management framework, and still requires a method of developing strategy, measures and targets. Getting BSC to work is hard work, requiring deep knowledge and understanding of what BSC does and does not provide, building other methods around it to ensure the strategic management process is successful.

    regards

    Kevin

  2. blank says:

    Hi Stacy,

    I couln't agree more.

    When my colleagues and I drew out the BSC strategy map, we realised it is just a piece of paper with words written inside bubbles. We even had one on "meritocracy".

    I would like to think of the BSC, as a starting point that gives clarity of allignment to the collective efforts of people. It gives meaning as people will know what is expected and how to dovetail their work performance. It's structure of lag and lead indicators gives direction to planning what measures and standards are required to meet the strategic goals. With the map, people can now shape the "territory" of the company to achieve, both in short term and long term goals. Without such a big picture or wholistic map, we end up being governed by ignorance, confusion, inconsistency, misallignment and disorientation.

    The real challenge in making strategy work is in implementing the map into tactical actions where performance measures come handy in facilitating progress.

    Regards
    Yuva

  3. Stacey says:

    Great comments, Kevin and Yuva! You're both so right: we need to put decent rigour into the strategy development and execution, as much as the measurement. Then it all comes together.

    I should say though, that there are some brilliant implementations of the Balanced Scorecard, and we'll be hearing from one of the experts, Paul R. Niven, in our February 2010 Expert Interview in the Measures & More program. Stay tuned for details in upcoming issues of the Measure Up ezine.

  4. Bob McGlynn says:

    The Balanced Scorecard has become a whipping boy because it has been so poorly executed. I would agree that a serious shortcoming is that it doesn’t provide a methodology for performance measurement. It should, though, provide the overall framework – the strategy that those measurements support.

    The Balance of the scorecard was to get executives to understand that there is more to having a successfully run business than just the financial area. Unfortunately, many strategies often suffer from the same weasel words or meaningless objectives as performance measures because the executives won’t or can’t build a compelling strategy.

    The strategy should be the guidepost for what’s important to measure. The strategy should also give people a mission, because when the employees really understand the strategy and buy-in, they know what needs to be done.

    Do you need a Balanced Scorecard to communicate strategy? No, but you have to have a way of communicating strategy, just like you have to have a way to communicate performance measures. And any performance measurement framework has to rely on those larger corporate objectives to be sure you are meausuring the right things.

    Don’t shoot the messenger, just be more critical of the message.

    Thanks!
    Bob

  5. Richard says:

    I’m with Bob — BSC is a framework and the only “cascading” aspect of it is, that each Role Clarity in the organisation needs to try and support as many of the dimensions as possible (eg. Financial, Customer, Process, People, Sustainability are our dimensions).

    The other point is that BSC is not a silo and as a framework it needs support from a couple of other areas. BPM (Business Process Mngt.) thinking — when designing KPIs it’s got to be “contextual” to the process/role in question and with the BSC in mind (ie. it must conform to the BSC dimensions).

    But BPM is not enough because to measure anything you are probably looking at your BI (Business Intelligence) group as well to give you the numbers. At this point instead of just reporting numbers you can go the extra mile and move to Exception-Based or Event Driven BI (ie. only report when thresholds are exceeded). Why look for exceptions? Well, these generally indicate process/people failures and so root cause analysis will generally help fix the problem (ie. if it’s not broke, don’t fix it).

    But BI is not enough either because in an Exception-Based environment you want to track who and how the problem got fixed, how long did it take, etc. This is likely to be some sort of Workflow engine with escalation points, etc

    And again, this is likely not to be enough because you’ll want to “close the loop” with some sort of visibility at a management level. Some might call it CPM (Corporate Performance Mngt). This is probably the BI group again.

    And then, when we talk continual improvement, we’ll adjust the KPIs in the Role Clarity and start the process all over again.

    The only constant in all of this is the dimensions in the BSC. Everything else will change as strategy and the organisation evolve. New strategies (ie. projects) by their very nature generally create new processes/roles and therefore new things need to be measured within the framework of the BSC.

    As a side note, the BSC will also need to support Collaborative KPIs or Pervasive Performance Mngt (PPM) where you agree on common KPIs with your external business partners.

    Another note, Role-based KPIs set the scene for “Role Best Practice” benchmarking especially in geographically disperse companies where processes are relatively consistent.

    Somebody said it wasn’t easy — well, it’s not but I always say “1 role at a time” or eat the elephant “1 bite at a time” 😉

  6. Phil Jones says:

    You are right Stacey,

    It is not an Operational Performance Measurement approach. It is a Strategic Performance Management approach.

    When used properly it is about managing the implementation of strategy and change, not (merely) measuring the operational performance. it is about engaging people in strategy and change. (But you know that really and are just being controversial, aren’t you 😉

    Phil

  7. Stacey Barr says:

    Phil – I always love your views on these things. So right that most of the problems come about from misuse.

    Just being controversial? Maybe. 😉

  8. Bogale says:

    G’Day
    I am a bit confused when you courageously say that BSC is not a performance measurement tool. In fact I myself is getting troubles in trying to adapt BSC as a performance measure. My question is what do you say to the advocates of the balanced Scorecard who insists that BSC can be used as a strategy design methodology and as well a performance measurement tool? What are the merits and demerits of using BSC as a measurement tool?
    Regards

  9. Stacey Barr says:

    Bogale, the primary merit of using the balanced scorecard is the power it has for aligning measures to strategy design and execution. The primary demerit is that it does not offer any specific methods for how to design the specific performance measures themselves. That’s one of the reasons why PuMP has become so popular, even amongst balanced scorecard users (who join the two methods together).

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