The Smarter way to better Business

Balanced Scorecard - Five Important Flaws In The Gem - And How To Cut It Right!
by Paul Bergquist

When Kaplan & Norton first promoted the idea of the Balanced scorecard back in 95 critics argued that the scorecard just didn't go far enough to make it a really useful management tool. Arguments focused on five perceived flaws in the BSC approach:

1. A scorecard is by no means a decision tool.

It can tell you the present status of different measures, but it cannot tell you how to achieve better performance.This is, of course, true. Still, focusing on measurable desired outcomes does motivate managers and employees to channel their creativity and available resources into efforts to drive performance.

Even more important, educating managers and employees alike on the link between the reported measure and the objective it represents and, most important of all, the cause-and-effect relationship between the different objectives, enables the kind of empowerment that fuels excellence. However, realizing the need for an even more action oriented approach, K&N later added the concept of 'initiatives' to BSC. Initiatives are a vital but, even today, a somewhat underfocused part of The Balanced scorecard approach.

Recent studies show a very low percentage of BSC-projects actually implementing initiatives as a part of their Balanced scorecard system. Many hope this will change as software vendors conform to the Collaborative's standards of certification, thus making initiatives handling an integral part of their systems.

A significant part of BSC projects, however, opt for in-house solutions based on spreadsheets or database designs. Educating consultants and project members on the importance of initiatives (and other action oriented solutions) is therefore vital.

2. A scorecard may also lead to counterproductive actions if management decides to 'play the numbers' instead of improving performance.

(K&N have tried to counter this effect by coining the phrase "Don't drive measures - drive performance".)This is still a very serious issue that any BSC project team simply will have to address in some way at some point.The reason is very simple.

Introducing Balanced scorecard to an organization is not just a matter of setting up a series of metrics in a computer system - it influences the actual power structure of that very same organization by making the invisible visible and making real people accountable.

Influencing a company's power structure is politics. No less. Some very real people will resist having their freedom and power of action reduced by tell tale metrics or they will simply fear the consequences of being held accountable for poor performances.

That's one (of several) reasons why so many consultants and 'BSC gurus' stress the importance of top management involvement and ownership of the BSC-process. Many reports indicates this to be one of the major obstacles to BSC implementation teams worldwide.

Resistance may take the form of vividly trying to avoid BSC as a whole, that certain metrics be included in the scorecard, or by choosing tactics that serve only to pump up (or deflate) the metrics involved.

The actual balance of the scorecard could be a vital sign of the actual degree of political influence on the design of the scorecard at hand. A high percentage (25% or higher) of financial measures may indicate either a fad oriented management OR it may be a result of management actively avoiding non-financial measures of importance. Or both.

3. The scorecard implies a top-down approach to management.

This is not necessarily true. There's nothing in the scorecard itself that limits management to a top-down approach. More than anything, the scorecard may be described as a market- to-organization approach to management. Top management outlining a company's cause-and-effect objectives without consulting their organization may find themselves very lonely at the top if results don't follow.

The wise manager seeks advice and support from his organization when building his strategy. After all, the scorecard does not allow for many misinterpretations, does it? Once those metrics are in, so is the verdict. At that point the wise manager adjusts company strategies, in collaboration with his organization, to fit the voice of the market. It's that simple (and it's that difficult).

4. Users of Balanced scorecard have little or no reference to what is actually achievable excellence.

Using benchmarking values as target values only tells you how well you are achieving in comparison to others, but it doesn't actually give a good reference as to what is achievable in your own organization. That's true.

However, it's quite possible to set "stretch targets" to test the organization's ability to "go beyond." Gradually stretching target values keeps the organization on its toes. Just remember to reward them handsomely if they succeed :-)

5. The links between financial and non-financial metrics are undocumented and possibly nonexistent.

I'm so glad I raised that question :-) This, to me, is the gold at the end of the scorecard rainbow. YES, the link is undocumented. YES, some links may even be nonexistent.

Balanced scorecard are not a set of predefined truths. It represents the company's present knowledge about itself, its abilities, its environment and how to succeed. This knowledge may be inaccurate, insufficient or even dead wrong. It may even be absolutely correct today, but completely misleading tomorrow.

We live in a highly competitive and ever changing environment. There's no way you can produce a scorecard that will be valid forever or represent the complete and absolute truth.

The value of the scorecard lies in your ability to learn from the feedback it provides, to change it accordingly, test new possibilities and gradually increase your understanding of the complex linkage among -financial results -customer expectations -ability to achieve -management -knowledge, and -employee relations that constitutes YOUR business.

The scorecard gives you the possibility to learn and to monitor for changes. Use it well.

Copyright 2005, Axsellit AS
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