The Unbalanced Scorecard
02 Dec 2014
The Balanced Scorecardis one of the most popular methodologies for measuring business performance, with a view to enhancing it. First made popular in the early 1990s, this performance management framework was intended as a tool to provide managers with a more complete and “balanced” view of their organisation’s performance by including nonfinancial metrics and key performance indicators (KPIs) in their assessments. Despite this excellent approach to the state of an organisation-previously viewed from a purely financial perspective-some organisations are still struggling to achieve success with this method. Many of the problems seem to stem from the balancing part of the evaluation.
To gain a complete view of an organisation’s performance, the scorecard considers four main perspectives:
- The Financial. This perspective consists of traditional financial data measurements: return on investment (ROI), revenue, cost-benefit, etc.
- The Customer. Different measures of customer satisfaction and customer experience will generally lead to customer gain and retention.
- The Business Process. An efficient organisation measures how well internal business processes are performing and ascertains whether these processes lead to customer satisfaction, market gain, and even supply efficiency.
- The Learning and Growth. This aspect is about improvements to both corporate culture and individual employee practices.
How these four perspectives combine is their “balance.” All four perspectives deserve equal consideration. To keep them in balance, you need to be aware that changes in any one domain will impact the other three. While the theory sounds simple, in practice things can be quite different. Some organisations have discovered that they need to modify their balanced scorecard initiatives in order to benefit from them.
Set and configure the right metrics to measure.
Establishing the right metrics to measure is a complex problem not only when deploying a balanced scorecard, but across the business performance space at large. The complexity of defining what to measure and measuring it accurately commonly forces organisations to adopt customised practices-not only with regard to the balanced scorecard, but in general, to the entire performance analysis practice within an organisation. You will have better success if you adjust your metrics and measures to your specific needs.
Re-establish the weights of the perspectives.
Many organisations have come to realise-often through a good deal of frustration and delays- that in order for the scorecard to be effective they need to change its balance, or “unbalance” it. Sometimes, it is necessary to put more emphasis on, for example, the customer perspective, even though it will affect the state of the other three perspectives. Give the perspectives different weights and adjust the priorities according to your own strategies and corporate environment.
Incorporate fresh elements (perspectives) into the equation.
The emergence of new risks, business models, and economic and other factors within the corporate world promotes the addition of new perspectives to the original four. Two approaches that are worth mentioning are the social responsibility and environmental perspectives-many organisations are adopting these sets of standards as part of their current practice.
Align the scorecard with the organisation’s strategy.
Organisations can find themselves struggling to align the balanced scorecard within their own corporate strategy for many reasons, but time pressure and negotiation often can play a major role. Deploying a balanced scorecard project demands research, as well as dynamic behaviour. Some companies avoid the legwork and end up determining only short-term goals. But your scorecards need to convert tactics into strategy and take a long-term focus.
Shifting the Balance
Does this mean that the balanced scorecard has failed to provide a reliable way to align business performance with an organisation’s strategy? No, the theory of the balanced scorecard is still perfectly valid but the theory should only be followed up to the point where it diverges from the organisation’s reality. A balanced scorecard project can take a long time, requiring a deep analysis of all the elements involved. Treating it as an ongoing project rather than a software product deployment can have beneficial returns.
Some organisations have adopted a flexible approach to the balanced scorecard theory, adapting their scorecard initiatives to their own specific conditions and requirements. This can mean throwing the scorecard out of balance. To increase the success of your balanced scorecard project, take a progressive and scaleable approach-incorporate more strategic and long-terms goals, along with new elements and perspectives that are important to your organisation.
There are two keys to useful performance measurement: an emphasis on end-to-end business processes and a focus on the drivers of enterprise results. This might mean adjusting the fulcrum of your business performance measurement tools and unbalancing the scorecard.