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Excel is NEVER a Good Balanced Scorecard Solution

There – I’ve said it. And I can hear the howls of outrage from here! I know that there are many people and companies out there that have implemented an excel version of their balanced scorecard (BSC) out of the gate – some even continue using excel over time. Many BSC practitioners will tell you that excel is the perfect solution for your first scorecard for a variety of reasons (which I will go into shortly), however, as a seasoned BSC practitioner who has been in your shoes, implementing and growing their company’s BSC and strategy management system, I feel that it’s time for someone to talk about the real reasons why you should never even think of using excel as your BSC solution. Not even as a first solution.

Savvy organizations implement the BSC to: (1) measure their progress with strategy execution; (2) learn more about how their business works to produce results (and then leverage that learning to make targeted investments designed to produce very specific business results); (3) manage and improve their business strategy (and the workings of the business that contribute to and support the strategy) in “real time”; (4) transform the way people and the elements of the business align/work together/integrate to deliver exceptional business results; and (5) build a strategy-focused organization.

Why has your organization implemented the BSC?

For those of you who said that you want to achieve all of the objectives listed above but over time, I want to challenge you – WHY ARE YOU WAITING? The truth is that you should start working on achieving all of these objectives for your BSC right from the start. The sooner you do, the sooner you will realize the business transformation that can be achieved with BSC use.

A good BSC application will help you achieve all of the objectives outlined above primarily because the framework for doing so is built right into it. Excel frankly can’t do this for you, no matter how expert your programmer is. At its best, a scorecard in excel can help you measure your progress with strategy execution and start you down the path to learning about and managing your business strategy. However, these are significant limitations that make excel an incomplete BSC solution – this should be enough to dissuade you from choosing excel as your first BSC/performance management application. However, if you need more evidence, let’s look at the top 3 arguments organizations use when choosing to go with excel for their BSC and my take on why they aren’t really viable pro arguments:

Reason: Excel is a less expensive solution.

Reality: While there may be no new licensing costs associated with using excel as your BSC platform, significant people investments in creating, maintaining, using, and improving your excel database will be required on an ongoing basis. Organizations often forget about, or feel more comfortable with, these costs because they are hidden in staffing budgets (and don’t show up as a new expense item). The good news is that most BSC/performance management applications are now available as SaaS solutions (software as a service) – avoiding costly initial investments and making them very affordable for most organizations. Also the time and resources required to create, maintain, use, and improve these BSC databases are usually reduced, freeing up valuable business resources to be deployed on other projects/tasks. Over a relatively short period of time, using a BSC-specific application can be more cost effective than using excel.

Reason: Our BSC indicators will change a lot over our first year of BSC use.

Reality: Up to 90% of your BSC indicators will change over the first year of BSC use – a really good reason to NOT use excel. The fact is that all excel BSC databases are set up with your initial BSC indicator hierarchy in mind. Indicators are hard wired to related indicators and strategic objectives. A change in the actual indicators, the relationships between indicators and strategic objectives, and/or results display parameters requires a foundational change in the BSC hierarchy. All of these changes to your BSC, when it is in excel, require time and resources to implement –making your BSC database inflexible and not very agile. BSC/performance management applications on the other hand treat each indicator and strategic objective as its own entity (an object), making re-positioning them in the BSC hierarchy flexible, fast, and easy. In essence, a BSC/performance management application actually supports greater experimentation with, and dynamic change in, your BSC over its lifetime – allowing it to always remain relevant to the information needs of the business.

Reason: Our programmer is an expert and can make excel do what it needs to show both data and commentary.

Reality: Your excel programmer may be the best there is but why are you asking them to make excel do something it wasn’t made to do/can’t do well in the first place? The truth is that excel cannot display data dynamically in user preference-based ways, integrate data and commentary into information, and act as a strategic knowledge management hub. Only a BSC/performance management application can.

By now, I hope that I have convinced you that excel isn’t a good option as your BSC solution. Need more reasons to begin with a BSC/performance management application right from the start? Let’s look at the top 3 reasons why you and your organization should launch your BSC using an off the shelf BSC/performance management application.

(1) BSC/performance management applications are scalable, flexible, and can provide easy to navigate, user driven displays of information with relatively little effort.

New indicators and additional databases can be added to your BSC/performance management application as your organization, and its use of the BSC, changes and grows. This ensures that your BSC is always current and relevant to its users – a critical success factor for sustained BSC use in any organization. BSC/performance management applications also offer customization of results display so that if one viewer wants to see data tables while another wants to see the same results displayed in graphical format, they can do so easily with the click of their mouse. The greatest news is that all of this can be done efficiently and with relatively little work effort.

 

(2) BSC/performance management applications help you build a strategy management knowledge hub.

BSC/performance management applications integrate data, narrative information, cross-functional business performance analysis, important strategic documents (e.g. the charters and milestone plans of key strategic projects), and relevant internal and external links/url’s into one consolidated view by indicator and/or strategic objective – this facilitates more effective, company-wide strategic discussion and learning. An exciting future direction is the addition of business community capabilities (e.g. blogs, chats, wikis, etc.) into BSC/performance management applications giving users a greater ability to interact with each other, and contribute to, strategic learning. The ability to look at your business through an accessible lens of integrated strategic information and knowledge ultimately transforms the way your business works and significantly improves the results it achieves.

(3) BSC/performance management applications help you build an accountable, strategy-focused organization.

Strategy execution is one of the biggest problems in business today. Building a culture of accountability for following through on strategy-focused action is one of the primary keys to strategy execution excellence. BSC/performance management applications make accountability for all elements of strategy execution and management transparent and can facilitate the distribution of accountabilities (e.g. strategic objective, data, and results commentary ownership) more widely and deeply across an organization. This greater attachment to, and responsibility for, the business strategy and achieving targeted business performance results via BSC accountabilities has the effect of building a more accountable, strategy-focused organization.

If you are thinking of introducing the balanced scorecard in your organization or are currently using the BSC, you need an application to support its use and to successfully achieve your objectives for your BSC. I hope you will take my advice: skip the excel route and go straight to the BSC/performance management application option because the associated advantages and benefits include: solution affordability/enhanced cost-effectiveness and organizational productivity; relatively lower labour costs (versus an excel solution) on an ongoing basis; faster creation ofa strategy-focused organization; business transformation and the achievement of enhanced business performance results; and achievement of a relatively high return on investment ($$ investment versus business results achieved).

There are many excellent BSC/performance management applications out there – you will be able to find one that meets your functionality needs and cost structure with just a little comparison shopping!

 

4 Comments

  1. Charley Kyd
    Dec 10, 2010

    Sandy,
    Excel frankly CAN implement the BSC goals you specify. In fact, Excel can do so in ways that dedicated BSC software can’t.
    Taking my second point first…
    …Particularly in difficult economic times, managers need to take off their blinders and pay attention to the environment around them. That is, they need to pay attention to external data from sources like the Federal Reserve Board, the Bureau of Labor Statistics, stock markets, and so on.
    This is data that few BSC systems contain. But it’s data that Excel users can download and display quickly and easily.
    Similarly, managers often need to pay attention to data generated by internal data silos. Again, this is easy to do with Excel, but not with BSC software.
    From a different perspective, measures of performance often require sophisticated calculations that most BSC software can’t support. But Excel can.
    Also, BSC software isn’t known for its ability to assist with budgets, forecasts, assumptions, and other types of user-generated data. But Excel is.
    Now, as to your points…
    Costs…
    I suggest you try to express your “Realty” paragraph about costs as a discounted cash flow analysis. Be sure to include the cost of consultants, new-hires, and training, along with the software costs. The ONLY way you could show a positive NPV for BSC software — other than by imputing a difficult-to-justify cash benefit from BSC software — is to assume that most or all Excel users will be laid off and that the number of Office licenses will plummet. And that ain’t gonna happen!
    Changes…
    …”The fact is that all excel BSC databases…” Wrong. The fact is that no Excel BSC database is the same. So you’re already heading in the wrong direction when you begin any sentence by assuming uniformity.
    …You describe the changes that BSC software requires; you declare that Excel must work the same; then you conclude that because Excel has the same limitations as BSC, Excel is a bad solution.
    …The fact is that good Excel implementations can support most changes in just a few minutes, which typically isn’t true of BSC software.
    Excel Programmers…
    …Many implementations don’t use Excel programmers at all. Instead, they’re supported by Excel users…the Subject-Matter Experts themselves. That’s a far better strategy than relying on IT people of any kind as an intermediary.
    …”excel cannot display data dynamically…” Not true. In large installations, Excel formulas might need to link to Excel-friendly OLAP databases. But those are solutions that ENHANCE Excel; they don’t try (and fail) to replace it.
    Finally, you did overlook what is typically a weakness of Excel: its display technology. Typical Excel systems aren’t designed as dashboards. This is one of the reasons I created templates like these:
    http://exceluser.com/dash/samples08.htm
    http://exceluser.com/dash/xbw2.htm
    There’s definitely a place for BSC, BI, BPM, and other such software. But the market is larger when the software works to enhance Excel, not replace it.
    Regards,
    Charley Kyd
    Microsoft Excel MVP
    http://www.ExcelUser.com

  2. Jeremy
    Dec 11, 2010

    Sandy,
    I completely agree! Excel is great because it’s easy to use and organize data on. But there will come a day when alignment, refreshing, and multiple users stretch Excel to it’s limits.
    We have designed our Excel to Balanced Scorecard software transition easier. Readers are invited to try a free 60 day trial at:
    https://www.clearpointstrategy.com/promo/index.cfm
    And be sure to ask for help with setup – our team uses the scorecarding, dash boarding, performance management, and business intelligence software in hundreds of organizations – so we are ready to get your organization going to!
    Thanks again for the great article Sandy.

  3. Sandy Richardson
    Dec 11, 2010

    Hi Charley:
    I appreciate your comments – I can see that you are extremely passionate about Excel! I hope that you noted that I was not making a generalized comment about Excel as a tool (there is no doubt that it has powerful capabilities) but, based on my years of experience, I, as you know, believe that Excel just isn’t up to the task when it comes to the BSC and strategy management. I guess that we will just have to “agree to disagree” in this regard!
    I do, however, want to respond to a few of the statements you made in your comment:
    The indicators selected for inclusion in a company’s BSC indicator set are purely up to the discretion of the company and users using the BSC. This can include cross-organizational internal data and external data – whatever the organization feels will help them manage their strategy optimally. As far as I have seen, these indicators can be easily added to most BSC applications.
    Automated and manual data upload can usually be handled easily by most BSC applications. I have, however, found that there is great value in having employees interact with the BSC through manual data input – they appreciate the sense of ownership and accountability and it makes the BSC more meaningful to them. When you select data owners wisely, manual data input into the BSC application does not add significant work effort because these owners tend to handle the data as part of their regular work.
    Forecasting and scenario planning are not usually expected capabilities for an organization’s BSC so I am not concerned when BSC applications do not do this – we have other applications to play this role.
    I agree that many BSC applications cannot handle complex calculations but this is actually a good thing in my mind. The best BSC indicators are the simple ones because they are often more sensitive and are easy for employees to understand and take action on. The BSC is all about providing us with a sensitive early warning system rather than a robust diagnostic tool so complexity often isn’t required or desirable. If, however, you want to use an indicator that has a complex calculation in your BSC, you can simply run the calculation outside the BSC application and then input the result into the application. Combining complex results over time can be a challenge but most BSC applications have solutions to work with this issue.
    I agree that there are some BI applications that are IT and consultant-resource intensive to implement – I am sure that this is the case with some BSC applications as well. However, there are just as many BSC applications where, with little consultant support, business people can create and implement a BSC database quickly and easily. I did this myself for a few of my own employers (one was a national company with 5 geographical regions and multiple application users and one was an international company) in as few as two database building days and I am hardly a skilled technical person! I have also seen my clients have the same experience with a user-friendly BSC application. With most BSC application implementations I have been involved in, ongoing use of the BSC application has been easily absorbed into the existing workloads of employees throughout the organization and has been streamlined when automated data upload has been used (leaving employees to focus and collaborate on the more valuable activities of root cause analysis, results commentary, solution generation, and strategic learning and improvement).
    My actual experience is that many BSC changes can be made quickly and easily in many BSC applications. Of course, this is assuming that the required changes have been thought through and planned in advance of actually making the change. In my experience, it is not quite as easy to make similar changes in an application such as Excel.
    Finally, don’t discount the value of an exceptional display and user-driven customization in gaining high levels of employee acceptance for an organization’s BSC and strategy – as you mention, this is where most BSC applications have a very big advantage over Excel.
    Regards, Sandy

  4. Sandy Richardson
    Dec 11, 2010

    Hi Jeremy:
    thank you for your comment and the link. I will certainly take a closer look at your solution!
    Regards,Sandy