Blog

What is the Balanced Scorecard?

This is another one of those fundamental questions that seems to raise a great deal of debate amongst experts and adopters alike. One thing I do know is that if you define your balanced scorecard as just a set of indicators then you are more than likely shortchanging your organization. To really optimize your organization’s strategy management efforts, I encourage you to take a wider view of what the balanced scorecard is.

The balanced scorecard is a powerful strategy management system that, in the best cases, serves multiple purposes. A great balanced scorecard should be:

● A strategy management “tool” providing you with both frameworks and processes that will help you manage and adjust your strategy in “real time”;

● A communication vehicle that lets your stakeholders know what’s important to the success of the organization, how things are going in terms of strategy execution performance and strategic objective health , and what needs to be adjusted in either the strategy or the organization to move forward;

● A catalyst for discovery, learning, problem solving, and the refinement of both operations and strategy on an ongoing basis; and

● The key to unlocking previous un-accessed organizational capacity to do the right things even better by enabling employees to clearly see where their actions fit into the bigger picture and empowering them to generate innovations and solutions that move the organization forward strategically.

I believe that if you take the traditional, limited view that the balanced scorecard is a set of indicators then you risk never being able to achieve the benefits listed above, which is really too bad because these key elements are critical to achieving strategy management success. From my perspective, the indicator set that most people call the balanced scorecard is in reality a sub-component of an expanded balanced scorecard. To realize the true value of balanced scorecard use, I would suggest that you need to think of the balanced scorecard as a bigger toolkit including the following components:

● A strategy map including a vital few set of strategic objectives that supports a clearly defined value proposition, the cause and effect relationships that exist among them, strategic objective definitions, and assigned strategic objective owners (the reason I include a strategy map in my definition of a balanced scorecard is because it is impossible to select a good set of indicators without it – though organizations still try!);

● A set of indicators (usually 16 – 36 maximum) that directly reflect or represent the strategy/strategic objectives including indicator definitions and assigned data and commentary owners (remember: the prime purposes of indicators include to evaluate the “health” of strategic objectives, provide you with an early warning system when the performance of a strategic objective is trending in a worrisome direction, and give your organization learning opportunities); and   

● The core business processes, strategic initiatives, and resources that drive strategy execution and support the organizational and operational performance and changes required by your business strategy (strategy execution is all about action – taking the time to align the components of your business with your strategy and then making that transparent to your employees allows you to assess current support for your strategy, identify gaps and develop appropriate responses, and engineer appropriate strategic support on an ongoing basis at all levels of your organization in a controlled and beneficial way).

Taking this broader approach to defining your balanced scorecard will increase the likelihood that it will actually facilitate strategy management success and make a positive difference in the performance of your organization. This is largely due to the fact that:

● The value critical elements of your business strategy have been identified and defined in actionable terms (via the strategy map);

● The indicators you select are reflective of your strategic objectives allowing you to really assess their progress and health (by leveraging strategic objective definitions when making your indicator choices);

● The organizational activities and supports required to ensure strategy execution are defined, put in place, and managed (i.e. processes, initiatives, and resources); and

● The accountability framework required to ensure that strategy execution and management actually happens has been defined (i.e. strategic objective, and indicator data and commentary owners);

Are you currently dissatisfied with the impact your balanced scorecard has had on company performance and/or the level of strategy execution success your organization has achieved?

Before you abandon your traditional balanced scorecard, why not approach it with this expanded view in mind? If necessary, go back and put all of these important components in place and try working with the (expanded) balanced scorecard again. If you do, I’m confident that you will see improved results and that your organization will begin to realize the benefits of balanced scorecard use!

Interested in more tips on BSC use? Click here to read our article “The Top 10 Reasons for Balanced Scorecard Failure in Organizations”

 

What is YOUR best BSC tip or success story? Please share it here with your prospective, new, and seasoned BSC colleagues.

3 Comments

  1. Rob Whitwood
    Jul 9, 2011

    Great post. So many people don’t use Balanced Scorecard to its full potential and then wonder why they are dissatisfied with the information they take from it. It is not a quick fix solution, more a long term route to success.

  2. Sandy Richardson
    Jul 11, 2011

    Hi Rob – glad you liked the post! It is just so sad to see the BSC being underutilized because, as we both know, it can be such a powerful tool for business performance success and organizational learning. While it does take some time to get up and running smoothly and to get it ingrained in the way a company works, in my experience, most organizations can start to see benefits after just a few BSC results review meetings and discussions. As you point out, the key is to stick with it and make the BSC changes required to keep it relevant to the business and users at all times!

  3. Giovanny Kaiser
    Mar 8, 2012

    Giovanny Kaiser

    I think this is a real great post.Really getting excited about read more. Awesome.