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Most Executives Unable to Take Balanced Scorecards From Concept to Reality

Published
  • October 27 2004, 1:00am EDT

Less than 20 percent of all typical companies have mature balanced scorecard implementations in place that are generating business value, according to research from The Hackett Group, a business advisory firm and an Answerthink company.

At their most effective, balanced scorecards can be powerful tools, providing concise, predictive and actionable information about how a company is performing and may perform in the future, and world-class companies are 159 percent more likely than typical companies to have mature balanced scorecards in place, according to Hackett's 2004 Finance Book of Numbers research. But the full benefits of effective balanced scorecards are not being realized for more than 80 percent of typical companies examined by Hackett. Primary reasons include too many metrics and overweighting the scorecards with historical financial information.

According to Hackett, companies report an average of 132 measures to senior management each month - nearly nine times the number of measures in most effective balanced scorecards. In addition, half the metrics companies rely on are driven by internal financial data, which places far too much weight on historical performance and not enough emphasis on forward-looking measures such as external financial and operating performance.

The findings are covered in Hackett's 2004 Finance Book of Numbers research, and also in a Hackett Perspective research report, "Balanced Scorecards: Are Their 15 Minutes of Fame Over?" It includes the following key research findings:

  • Few companies have mature balanced scorecard programs. Hackett's 2004 Finance Book of Numbers research found that overall, nearly two thirds of typical companies have some type of balanced scorecard program in place or in development. But Hackett found that only 17 percent of all typical companies have developed mature balanced scorecards that rely on a mix of financial and operational metrics. World-class companies are 159 percent more likely to have reached this level in their balanced scorecard efforts -- but even at world-class companies, only 44 percent have achieved this goal.
  • Most companies rely on far too many metrics. Hackett found that companies report an average of 132 metrics to senior management each month (83 financial and 49 operational). This is nearly nine times the number of measures suggested as appropriate when the concept of the balanced scorecard was introduced in 1992.
  • Companies focus too heavily on finance data. Balanced scorecards should focus on a mix of internal and external measures. But according to Hackett's research, 50 percent of the measures companies currently use are keyed to internal financial data. Other measures are incorporated, including internal operating statistics (33 percent), external financial data (13 percent), and external operating (4 percent).

 

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