Since Robert Kaplan and David Norton first wrote about the balanced scorecard in the Harvard Business Review in 1992, the concept has become a popular management tool. Numerous companies have designed scorecards, and major investments have been made in the technology and tools to support their delivery to management.
The balanced scorecard was designed with the realization that traditional financial measures were not adequately supporting the measurement and management of intangible assets. The scorecard added customers, internal business processes, and learning and growth to help correct that imbalance. These new dimensions complemented the financial measures and provided management with a broader perspective around both the physical and intangible assets.
Unfortunately, some of the early adopters struggled in getting full value from their investments. As they gained experience in using scorecards and similar tools, they sought to further refine the concept and develop a better understanding of the critical success factors for successful deployment, such as:
- Linking the scorecard to the overall business strategy.
- Integrating the scorecard into the overall management process.
- Consistently sourcing the data to support scorecard delivery.
While finding the scorecard useful, many executives need a more explicit linkage to their overall business strategies. These strategies generally focus on points of competitive differentiation in a company's product or service offering. Therefore, forward-thinking companies "bias" their scorecards to the dimensions that most closely support their strategic direction. For example, a company that seeks leadership through customer service would link, or bias, its scorecard measures directly to customer service objectives. It should be possible to review a company's scorecard and discern all the key elements of its strategy. If a strategy addresses innovation, customer retention and employee empowerment, there should be relevant measures for each on the scorecard. One CEO has gone so far as to use the scorecard as his guide for conducting calls with Wall Street analysts, since it provides him with a common frame of reference to explain performance and plans across all key strategic dimensions.
Integrating the Scorecard
Many companies are finding that it is difficult to integrate their scorecards into their planning, budgeting and resource allocation processes. Too often, managers are focused on making budget, which results in the scorecard becoming "a nice to have" rather than an essential management tool. Similarly, the linkage between changes in scorecard metrics and subsequent changes in priorities and resource allocations is often blurred. The solution is to ensure that a scorecard meets three basic criteria:
- The measures on the scorecard must be the same measures around which planning targets are set, budgets are developed and projects are prioritized; in fact, the scorecard becomes the agenda for the management process.
- Incentive compensation needs to be tied directly to scorecard performance measures.
- Scorecards are cascaded down the organization to ensure consistent linkage between individual goals and measures and overall business objectives.
Sourcing the Data
The third major source of frustration with scorecards is the gulf between the desire for metrics to be reported and the ability to actually source data so that the information can be delivered on an ongoing basis. This usually manifests itself in two ways. The first is that managers get excited about the potential availability of new measurement information, yet they're subsequently disappointed when the scorecards are completed only in the financial dimension while a series of N/A notations appear where the new metrics should be. The other manifestation is that the time line from management agreement on the metrics they want until the time the information is delivered is so long that priorities often change and management buy-in wanes significantly.
Tackling the first issue requires that organizations undertake an effective data sourcing review before seeking executive buy-in on the scorecard's measures. This ensures that metrics are adequately sourced with appropriate data. The second issue is best addressed through the rapid prototyping that ensures scorecards can be delivered in less than 90 days. The early adopters of this approach would even use paper-based, manually prepared scorecards as the first prototype. This had the added benefit of validating the usefulness of the measures before building the systems infrastructure.
The emergence of packaged tools can greatly aid the scorecard development process. As balanced scorecard use increases, companies are learning that while it is not the silver bullet many thought they had, it can be a valuable component of the overall management process. Scorecards are powerful tools for helping management better understand the full spectrum of performance across their organization and make more effective decisions when used as part of an integrated performance management process. Implemented poorly, a balanced scorecard will most likely contribute to the mass of data under which many organizations are straining to survive.
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