The balanced scorecard is a business performance management tool used by strategy-focused organizations to: translate their business strategy into actionable and measureable terms; manage the execution of business strategy and the achievement of their mission and vision in “real time”; validate and learn more about the relationships between key business performance drivers; communicate the business strategy to key organizational stakeholders; and facilitate dynamic strategy management.
Recall that in strategy-focused organizations, the balanced scorecard is just one component of a larger, more comprehensive strategy management tool known as the Integrated System for Breakthrough Performance (see my previous blog entry to learn more about the components of the integrated system for breakthrough performance).
While the balanced scorecard has been used by many organizations successfully, many organizations have experienced balanced scorecard failure. Balanced scorecards fail in organizations for a variety of reasons – here are just five reasons I see in organizations.
– Lack of visionary leadership and active senior executive commitment and involvement – Any new and different approach to business strategy and organizational performance management requires strong and active CEO, senior executive, and leadership team participation and commitment to be successful. Lack of leadership’s participation in, buy in for, and commitment to, the balanced scorecard and building a strategy-focused organization will almost certainly result in the failure of the balanced scorecard within the organization. In fact, when there is a lack of CEO, senior executive, and leadership team buy in for the balanced scorecard and strategy management via the balanced scorecard, organizations should not proceed with balanced scorecard development and implementation.
Steps for Success: Ensure executive and leadership buy in and commitment for balanced scorecard use before beginning the balanced scorecard development process.
– Introducing the balanced scorecard for reasons other than those related to better business performance management – If your organization is adopting the balanced scorecard just to keep up with peers who have started using it, to develop a variable compensation scheme, or to present a forward thinking image to an outside audience, you would be advised to stop the process NOW. The balanced scorecard was designed to provide companies with a tool (and process) for organizational performance management – one that facilitates targeted improvement efforts and resource investments, and enables improved levels of strategic performance. In organizations that implement the balanced scorecard for reasons other than this, managers and employees soon figure out that the balanced scorecard is just “for show”, quickly resulting in organizational resistance to the balanced scorecard. Steps for Success: Ensure that the balanced scorecard is being implemented in your organization for all the right reasons.
– Lack of cross-functional organizational/employee involvement in developing the balanced scorecard – Employee involvement in the creation of an organization’s balanced scorecard will result in a higher quality product and will help build greater employee buy in for strategy implementation and management using the resulting balanced scorecard. While it can be mitigated to some degree through extensive balanced scorecard education and communication activities, low levels, or the lack of, employee participation in the development of an organization’s balanced scorecard can play an important role in balanced scorecard failure. Steps for Success: Ensure broad, cross-functional employee involvement in your balanced scorecard development and implementation processes.
– Not clearly linking balanced scorecard indicators with strategic objectives – Simply put, a balanced scorecard that is not grounded in, and clearly linked to, business strategy is just a collection of measures that management and employees may, or may not, see as helpful, informative and, ultimately, relevant. Irrelevancy translates into balanced scorecard failure.
Steps for Success: Clearly link balanced scorecard indicators with strategic objectives to maximize the value of the balanced scorecard as a strategy management tool.
– Forgetting that the balanced scorecard is a tool for measuring the health of the business strategy – The balanced scorecard is a tool for providing feedback on the performance of the business strategy to management, employees, and key stakeholders. The balanced scorecard is NOT an operational performance management tool and should not be expected to include a broad list of operational measures. To tell us about the health of strategic objectives and the business strategy, the balanced scorecard uses one or two indicators (maximum) to give us a fair indication of how a strategic objective is performing. Balanced scorecard indicators must reflect the intent of a strategic objective and should be either direct or proxy measures for the strategic objective. It is also important to realize that balanced scorecards are not meant to be diagnostic. That is, under-performing balanced scorecard indicators do not tell us what is going wrong – they stimulate further investigation into root cause problems (usually using operational measures).
Steps for Success: Select balanced scorecard indicators that reflect the intent of your strategic objectives and will allow you to closely monitor the health of each strategic objective.
Simply following these five steps to success will put you and the members of your team on the road to building the focused and sustainable balanced scorecard your organization needs to manage strategy successfully!