If you haven't yet heard of the Balanced Scorecard, it's a world-renowned model developed by Robert Kaplan and David Norton in the mid 1990's to encourage corporations to realise that relying on just the financial metrics is relying on too little, too late. They wrote the landmark book, "The Balanced Scorecard: Translating Strategy Into Action" to demonstrate how to measure corporate performance in a more balanced way, that aligns everyone in the corporation to its strategic direction.
But does it?
The Balanced Scorecard has well-known implementation problems.
There has been much criticism of the Balanced Scorecard by organisations that have attempted to implement it. They hoped to quickly manifest a meaningful suite of performance measures that has everyone focusing on what matters most in fulfilling the mission, vision and goals. But didn't.
Implementers of the Balanced Scorecard find they end up with too many measures in the tangible parts of their scorecard, not enough measures in less tangible parts of their scorecard, and altogether not measuring meaningful results. Why does this happen?
The Balanced Scorecard doesn't put enough emphasis on results versus strategies.
The primary building blocks of the Balanced Scorecard are 1) it's four perspectives of financial, customer, internal business process, and learning and growth; 2) the strategies that populate and link through each perspective; and 3) the measures that link to each strategy.
Most people express their strategies as vague, jargon rich actions, and struggle to tease out the specific and tangible results implied by these strategies. So they measure what is easy to measure: progress against planned activity, the reaching of milestones and whatever else they have data for. The measures focus on activities like "develop target markets" and "upgrade staff competencies", not outcomes.
The Balanced Scorecard doesn't offer the steps to measure design.
Bordering on prescriptive, the Balanced Scorecard literature offers ideas for measures to use, for specific strategies typical of each of the four perspectives. Functionality. Brand Image. Relationship.
But these terms mean such different things to different organisations and people, so to measure them meaningfully takes more thought than brainstorming or copying from a book. It takes a thinking process that extends from an intimate understanding of the result that needs measuring, and this often requires climbing out of mental ruts like "this isn't measurable" and "we don't have the data".
The Balanced Scorecard doesn't show the process of measure implementation.
Populating a balanced scorecard with measures assumes that the populating process is obvious and straightforward. Select some measures, then give the IT department the brief to report them. "Add customer retention to the scorecard, thanks!" is just too brief.
You can't ignore the many details that can (and do) make the difference between measuring what's easiest versus measuring what was meant to be measured. There are many subtleties to measuring something like customer retention, which need to be drawn out into a full definition, from which the measure can successfully be brought to life.
So is the Balanced Scorecard all bad?
No, the Balanced Scorecard is not all bad - it will go down in history as the serious beginning of non-financial performance measurement in the corporate world. And its heart is really the roadmap for linking what happens from day to day in a corporation to its strategic, longer term direction, through deliberate conversation about strategy design. But it's not about performance measure design and implementation.
It's just not specific enough to stand alone as a performance measurement tool.
To select truly meaningful measures for your scorecard - beyond the traditional profit, customer satisfaction and employee turnover - you need to learn a way of thinking about measurement that Kaplan and Norton didn't address. To make your scorecard a success, couple the strategic design and translation power of the Balanced Scorecard, with a deliberate performance measurement process like PuMP.
Thursday 8 November 2007
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