The balanced scorecard is a truly powerful tool for business results achievement – I know because I have seen it make a significant contribution to the success of many different organizations. Actually, I’ve seen it AND I’ve experienced it (as an employee in a dedicated balanced scorecard organization).
However, sometimes I feel like I know a secret that other people and companies have missed out on. I’m always dismayed when I talk to business leaders who have abandoned the balanced scorecard because, in their judgment, it didn’t deliver on its promise. In fact, I’ve seen this outcome far too often. So, this started me thinking about why this happens and how we can ensure that the balanced scorecard approach to strategy and business performance management lives up to expectations for every organization that adopts it. Here’s what I have come up with.
I have come to believe that the root of the problem is two-fold – (1) misconceptions about what the balanced scorecard is for and what it includes; and (2) misconceptions about how best to use it. Here’s what I think:
The balanced scorecard is a method/process and a tool that facilitates the implementation of a strategy management system within an organization. A strategy management system includes strategy creation/reformulation, strategy implementation/ execution, and strategy improvement processes, frameworks, approaches, and resources. Organizations that implement a strategy management system develop into strategy focused organizations – high performance organizations that consistently deliver against strategic goals and objectives, dynamically manage and hone their business strategy so that they stay competitive AND true to their values and purpose regardless of the business environment, and, ultimately, achieve desired business results year after year.
Is this the way you look at your balanced scorecard? If you look at it simply as a measurement tool then you are setting your balanced scorecard up to provide you with sub-optimal benefits right from the start.
If you buy into the idea that your balanced scorecard is more than a measurement framework and tool then you quickly realize that you have to think of the balanced scorecard as more than a set of indicators. Typically, when you ask people what makes up a balanced scorecard they say “A set of measures that correspond to the organization’s strategic objectives.” While this is certainly a component of the balanced scorecard, this is just one third of the story!
To take advantage of the true power of the balanced scorecard it is important for you to expand your mind and your definition of the balanced scorecard to also include: (1) a strategy map; and (2) the core business processes and strategic initiatives or projects that will drive the change or support the performance of the strategic objectives that contribute to the achievement of your ultimate business objective and mission and vision.
Basically, to achieve the business results promised by balanced scorecard use, you need to include these three core elements: (1) a strategy map; (2) core business processes and strategic initiatives; and (3) a focused set of strategic indicators, in your definition of your balanced scorecard. This is because they are inextricably connected and work in a highly integrated way to help you actually achieve the results defined in your business strategy.
Here’s just a snapshot of how it all works:
Your strategy map defines your value-creating business strategy in actionable terms and your business processes and strategic projects are the activities through which your organization realizes your strategic objectives/puts them into action. The performance of your business processes and initiatives produces the data points that you will measure in your balanced scorecard indicator set. Your indicator results provide you with feedback on the execution of your strategic objectives and, when progress is below expectations, root cause analysis and corrective actions are completed where the real work in your business gets done – at the level of your core business processes and strategic projects.
I could go on but I think you get the picture. Successful strategy management is about managing the system and if you want your balanced scorecard to really help you do that effectively, you must include the key elements of the system in the picture.
As I said, many people think of the balanced scorecard as a measurement tool. However, it is really: an organizational alignment and management tool; a communication tool; a business improvement tool; an accountability framework; a guide for cultural transformation; and a catalyst for learning and creating a deeper understanding of how your business works in an integrated way to produce business results.
In addition, the balanced scorecard is an organizational/business management process that facilitates: organizational focus on targeted business priorities, strategic objectives and goals, and mission achievement; the successful balancing of short and long term business decisions; and the leveraging of the creativity, innovative thinking, knowledge and wisdom, and potential and capacity in your workforce that is just waiting to be tapped into (which can be achieved when your employees understand the business strategy and where you are trying to go, can see how they fit into the picture, and are engaged in the strategy creation, execution, and improvement process).
In short, your balanced scorecard can be a powerful and awesome force for change and achievement in your organization if you let it. Don’t hold it back by limiting your view of what it can really do for your organization.
If you and your organization have walked away from the balanced scorecard due to past disappointments, I want to encourage you to try again with a fresh approach to, and definition of, the balanced scorecard.
If you are a new balanced scorecard organization, I hope that you will approach it with a broad perspective so that the balanced scorecard can play its role in helping your organization achieve the business performance results you are shooting for!