Since its inception in the early 1990s, the Balanced Scorecard has become one of the most popular management tools used by many organisations worldwide to measure, monitor manage and deliver enterprise performance. First designed as a performance measurement tool focusing on four quadrants of the organisation (Customers, Learning and Innovation, Internal Processes and Financials), the balanced scorecard has now transformed itself into a very useful strategic performance management tool incorporating the use of Strategy Maps to aid decision making.
Correctly implemented, the balanced scorecard will help you communicate your organisational strategy, operationalise it and measure the success of its implementation. Badly implemented, it has the potential of doing more damage than good. Even though almost every organisation has some kind of scorecard in use, many are still failing to achieve positive results.
How can organisations correctly implement the balanced scorecard?
• Understand the factors critical to the success of the strategy: Unlike the traditional balanced scorecard, the modern balanced scorecard is more than a performance measurement tool. Instead, it is a strategic management framework that comprises a Strategy Map of objectives and a scorecard of measures, targets and initiatives. Many organisations still fall trap of just listing as many indicators as they can in each of the four quadrants and fail to recognise the fact that not every indicator has to be on the scorecard.
You need to understand the causal inter-relationship of the indicators in each of the four perspectives and the impact of such relationships on organisational performance. Instead of just selecting a number of objectives for each quadrant without first establishing their cause-and-effect relationship, your modern scorecard should help you clarify, communicate and link your organisational strategic objectives and measures, plan and set targets, align strategic initiatives and enhance strategic feedback and learning.
In short, the balanced scorecard should help you understand business drivers and focus on value adding activities that improve organisational performance.
• Recognise that implementing a balanced scorecard is a change program: For widespread change in your organisation to be successful, you need the participation and buy-in of the essential players. The list of players include middle management, senior management and change agents. These players (sometimes known as Champions of the project) possess the power to influence others and effect change.
Engagement of those who are going to be affected by the change process is critical to obtaining buy-in. In other words, you need strong supporting organisational structures, operating systems and strategies.
• Understand that the balanced scorecard is an empowering tool: It creates dialogue about organisational strategy, makes the strategy transparent and helps check the legitimacy of targets. All this reduces the risks of delegation. However, in some organisations, there is still widespread use of the “Carrot and Stick” approach to induce behaviour.
This reduces the level of accountability for well-defined results because people are scared of getting punished if they fail to hit their targets. As a result, performance improvement is compromised. The way forward means moving away from this central planning approach where everything is formal and targets imposed on line managers to one where line managers own the scorecard and a culture of continuous improvement and learning is fostered.