This magazine is produced by the new association between the American CPA institute and our own CIMA body, following their recent joint venture agreement. And it is quite a coup to get the two founders of the concept of the Balanced Scorecard (BS) to contribute on the 20th anniversary of their launch of the framework in their initial Harvard Business Review article. As an admirer of the original concept - and of much of Kaplan’s work - I was looking forward to hearing about their latest thinking.
I was therefore a little disappointed at the article’s brevity and its lack of new thinking. The main extra ingredient was its link to their ‘strategy map’, suggesting that the Balanced Scorecard is central to the strategic planning of any right thinking organisation. I found this hard to accept because, though I have long been an advocate of their main message that performance should be measured along a number of dimensions, I have never seen it as central to the whole strategy process.
If that had been the only point made, I would have been disappointed but in fact there were some more valuable points in the rest of the article. To me the most interesting area of future potential is their suggestion that the framework of the scorecard can be used in an external context as well as to monitor internal performance. I felt rather smug reading this as MTP has already used the BS framework as a checklist for competitive benchmarking, to ensure that the analysis is not confined to financial information; in addition we look at customers, culture, people and innovation.
Kaplan and Norton go even further by suggesting that companies should be working with suppliers and customers to have an integrated supply chain strategy, using the scorecard as a framework to agree joint objectives and monitor performance. This is perhaps a rather idealistic view and would not be easy to implement but it could work if the will was there on both sides.
I was also surprised to hear that BS has been used quite extensively in the public sector, with a number of major cities developing their strategies and monitoring performance on this basis. The authors also suggest that the other area of recent development and future expansion is risk evaluation and management, as a checklist to ensure that all risks have been taken into account.
As I read the article and tried to follow the six stages of the strategy map, with its complex network of arrows and boxes, I had the feeling that this was a great idea but maybe now its creators are trying too hard to drag out every last drop of value from it. BS has been and still is a brilliant checklist that encourages management discipline and avoids financial measures becoming too dominant. But that’s all it is; it is not a replacement for strategy and it has been taken as far as it can go. Kaplan and Norton should be looking for their next big thing.
Click below to see the original article;
2 comments:
A couple of trends I agree with from the article are the increased use of analytic or index metrics on the scorecard. Simplistic singular measures of any dimension of performance (e.g., net promoter score or $ in revenue) fail to provide an accurate assessment of peforamcne on their own. I also agree that scorecards need a more external focus. My client often add another category of data to the scorecard called "External Factors". These are metrics that can be tracked daily/weekly that have a huge impact on company performance. For example, for a bank, it may be interest rates, or the price of raw materials for a manufacturing business. What I have not found useful for my clients is strategy maps. Most are nothing more than a complicated diagram of assumptions about causal realtionships between dimensions on the scorecard or individual metrics. Strategy maps based on research/data are a great idea and K&N discuss how companies have been loath to adopt such approaches, preferring expert opinions over hard data. Some other trends I have seen in my 30+ years consulting and writing about performance metrics are scorecards that address both the vision/strategy, as well as the mission or basic operation of the business. Having two completely different sets of measures just adds unneccesary complexity, and most executives I work with want one scorecard/dashboard that provides information on all major performance measures. Another trend that is having big impact is the use of social network data to provide real time measures on factors such as customer satisfaction and employee engagement. Annual surveys are most often a waste of time, and anything you measure once a year is a good study, but does not belong on the scorecard.
The concepts behind the balanced scorecard are just as valid today as they were 20 years ago - you cannot assess the health of an enterprise by only looking at lagging financial measures. Scorecards are evolving to become more sophisticated, allowing companies to be more agile, and proactive. My 2007 book: Beyond the Balanced Scorecard provides more detail on some of these trends.
It always helps to make some adjustments to keep balanced scorecards up to date. It's one of the best ways to keep it from being obsolete.
Post a Comment