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What’s the Real Business Value of the Balanced Scorecard?

I get asked this question on a fairly regular basis.

When business leaders pose this question, I know that what they are really asking me is – “How much of a bump in our business results will using the Balanced Scorecard give us?”

When I get asked this question, I usually respond with “it depends”. Though this may seem like a wishy-washy answer (and not really what a business leader wants to hear), it’s my honest response to the business results impact question.

You see, the business results that the Balanced Scorecard CAN enable for any organization that uses it are dependent on four critical factors directly related to the organization and its business strategy:

1. Whether it has a clearly defined PRIMARY customer or stakeholder value proposition (i.e. either operational excellence, product/service leadership and innovation, or customer/stakeholder intimacy – not one that’s focused equally on all three),

2. Whether its selected customer or stakeholder value proposition and business strategy are “right” (i.e. there’s a market/need and a “customer” for what it offers/sells, providing it with a reliable revenue stream or access to funding),

3. Whether its operating model is adequately designed to support the profitable/cost-effective delivery of its customer or stakeholder value proposition, and

4. Whether the organization is aligned with and focused on executing its business strategy and delivering its customer or stakeholder value proposition.

What the Balanced Scorecard CAN do is help organizations optimize each of the four critical elements outlined above. Let’s take a closer look:

Enabling Organizational Alignment and Focus (Element 4)

The old adage “What gets measured gets managed” seems trite but it’s still true. Assuming that your Balanced Scorecard indicators adequately reflect your strategic priorities, your Balanced Scorecard will help your employees gain a better understanding of your customer or stakeholder value proposition and the associated business strategy, AND your organization’s work will become more aligned with, and focused on executing, your strategy.

Improving Organizational Capability (Element 4)

The Balanced Scorecard measures progress on building strategy-critical employee and organizational capabilities. When Balanced Scorecard results indicate that progress here is lagging, targeted capability improvement investments can be made with the confidence of knowing that they will ultimately translate into the desired customer or stakeholder outcomes and business performance results.

Validating Your Business Operating Model (Element 3)

When it’s designed to reflect the underlying cause and effect relationships within your business operating model AND between your business operating model and your customer or stakeholder value proposition (as depicted in your Strategy Map), the Balanced Scorecard makes those relationships transparent. This is great because transparency allows you to see whether they are actually working in the way that you expect. When Balanced Scorecard results call these cause and effect relationships into question, you have an opportunity to review and adjust your business operating model, if required, to enable the consistent delivery of your customer or stakeholder value proposition.

Improving Organizational Efficiency (Element 3)

Balanced Scorecard results let you know whether your organization is operating at optimal efficiency and whether your business model appropriately enables profitability. When results are off track, relevant efficiency improvement initiatives, designed to eliminate root cause problems, can be implemented.

Helping You Determine Whether Your Customer or Stakeholder Value Proposition and Business Strategy are “Right” (Elements 1 and 2)

Your Balanced Scorecard results may be showing you that you are executing your business operating model, business strategy, and customer or stakeholder value proposition flawlessly but is this producing desired customer/stakeholder and financial results? Your Balanced Scorecard results will tell you this too. When customer/stakeholder and financial results are below expectations, your Balanced Scorecard could be telling you that something isn’t quite right about your customer or stakeholder value proposition or business strategy. What your Balanced Scorecard WON’T tell you is what “right” looks like. But, it CAN help guide your investigations and customer or stakeholder value proposition and business strategy revision activities.

If, however, you insist at being the best at producing cement lifejackets, there’s nothing the Balanced Scorecard can do to help you achieve better top and bottom line business results!

When all four of the critical business success elements are successfully optimized through Balanced Scorecard use, the Balanced Scorecard WILL help an organization: (1) experience higher levels of performance in the business imperatives/areas required to deliver its customer or stakeholder value proposition, (2) deliver its customer or stakeholder value proposition consistently, allowing it to achieve the desired customer/stakeholder impact and outcomes, and (3) achieve targeted financial performance results.

What these specific business performance/results areas are is unique to each individual organization and customer or stakeholder value proposition. And the level of improvement realized/results achieved depends on how effectively the Balanced Scorecard is implemented and used by that organization.

So, with this in mind, I hope you`ll understand why, when you ask me “What’s the real business value of the balanced scorecard?”, my answer will be “It depends”.

3 Comments

  1. James Creelman
    Feb 2, 2015

    Nicely put Sandy. I agree with everything that you say.

  2. Aleksey Savkin
    Jun 11, 2015

    We I have such conversations (What’s the Real Business Value of the Balanced Scorecard?) I prefer to start with a short discussion of what a Balanced Scorecard is and is not. A typical misunderstanding is that it is about “balancing” some KPIs. When there is an agreement about what it is the dialog goes in a much more productive way.

  3. Mihai Ionescu
    Apr 12, 2017

    The Balanced Scorecard, if we are talking about the Kaplan-Norton BSC Framework (Execution Premium Process – XPP), is a model used for translating the Strategy into a Strategic Plan, for Aligning it throughout the organization and strategically integrating the Operational Planning. The same model is used during Strategic Plan’s execution as Decision-Support system for taking strategic Corrective Actions, for self-updating and for facilitating the Strategic Adaptation.