I’m starting to see it again – Balanced Scorecards that suffer from an explosion of measures. More specifically, I’m seeing a trend towards attaching multiple metrics (rather than indicators) to a single strategic objective. The usual result is a Strategy Scorecard on steroids that has become an administrative nightmare, is slow moving and lethargic, and is difficult to use because there’s an overwhelming blur of data to wade through.
Bloated scorecard syndrome is often a key factor contributing to an organization’s dissatisfaction with the Balanced Scorecard.
However, an explosion of Balanced Scorecard metrics isn’t the real root cause problem in these cases – it’s usually a misunderstanding of (1) the purpose of the Balanced Scorecard, and (2) the true role of indicators on a scorecard.
Simply put, the Balanced Scorecard is meant to be a strategy management navigational device.
Yes – it’s a process and a tool but its primary purpose is to give you and your team ongoing directional feedback about the success of your strategy execution efforts and the ability of your strategy to produce the intended results.
Ongoing directional feedback means that a well-crafted scorecard will give you feedback on the health of the individual strategic objectives on your strategy map/Balanced Scorecard AND the system that is your strategy/business model. In broad strokes, health can be positive, neutral, or declining (each health status will have its own range or variance). The brilliance of the Balanced Scorecard is that it allows you to assess health at a micro/strategic objective level all the way to the more macro/whole system level in just one “view”.
While it’s important to focus on what the Balanced Scorecard’s true purpose and power is, it’s critical to understand what it is not. The Balanced Scorecard is not a diagnostic tool. That is, it’s not meant to tell you what the root cause problem IS when a performance issue is emerging or has exploded onto the scene. The purpose of the Balanced Scorecard is to, ideally, act as an early warning system that (1) alerts you and your team that a problem is brewing, and (2) prompts you to intelligently and pro-actively investigate the issue further.
When you approach your Balanced Scorecard with its real purpose in mind, it’s easy to relax and get comfortable with the idea of starting with indicators rather than metrics (which tend to be diagnostic in nature) for effective strategy management.
Indicators are meant to be representatives of the intent of the strategic objective you want to keep your eye on. They need to relate to the strategic objective but they don’t need to be the most direct measures of each component of the strategic objective in question. A good indicator will play its important job of alerting you to any underlying problems with a strategic objective. To be useful in doing this well, a good indicator must be a fair representative of the most strategy-critical element(s) of a strategic objective, it must be sensitive enough to pick up and communicate the fact that a change is occurring in the environment, and it must be easy to understand and point you in the right direction when further investigation is needed.
Still not sure about the value of indicators?
The fact is that you use indicators in your life today. The oil light in your car and the smoke detector in your home are just a few examples of indicators that we are quite comfortable using to alert us that something is wrong (without telling us exactly what is wrong). In addition, did you realize that, in many cases, we are actually good with using a single indicator to monitor the health status of an entire system (or set of systems)? For example, taking one’s body temperature comes to mind. Now that’s the power of a solid indicator!
Strategy management via the Balanced Scorecard simply relies on the same principles we use to manage our health and safety in everyday life – making a shift in perspective about the management of the health of your strategy should be easy for you and your team. Once that’s accomplished, put your mind shift into action by populating your Balanced Scorecard with a focused set of strategy-critical indicators. Doing this will ensure that your Balanced Scorecard is perfectly positioned to be a powerful, nimble, and easy to use strategy management navigational guide for you and your organization.
Is your Balanced Scorecard suffering from Bloated Scorecard Syndrome?
Are you and your team expecting too much from your Balanced Scorecard indicators?
Now is a great time to do a checkup and give your Balanced Scorecard a tune up. Do it now and you’ll be ready to launch an improved Scorecard when your organization’s post-summer gear up gets underway in September!
Summary for Success:
The keys to success with the Balanced Scorecard are:
(1) Remembering that it’s a strategy management navigational device (not a diagnostic tool),
(2) Selecting a small number of high quality indicators for each strategic objective on your strategy map/Balanced Scorecard (one or two maximum) – challenge yourself to find a single great indicator with a broad reach when it comes to the intent of each strategic objective,
(3) Using your indicators as an early warning “tripwire” and being ready to do further investigative analysis when indicator results suggest it’s required, and
(4) (BONUS TIP!) Using the results of your investigation to fix/eliminate root cause problems and get strategic objective health (and indicator performance) back on track.