A discussion of practical issues that managers encounter in the development, implementation and use of the balanced scorecard
Professors Kaplan and Norton developed the Balanced Scorecard (BSC) over two decades ago. The Balanced Scorecard helps organisations integrate the measurement of a business’s tangible and intangible assets into a performance management system. The Balanced Scorecard has undoubtedly led to a marked improvement in the performance of many organisations.
Over the years, the Balanced Scorecard has been the basis for many consultancy and training programmes in strategy and performance measurement. In my consulting experience, some managers continue to raise pertinent questions about using the BSC. This post aims to discuss issues arising from the Balanced Scorecard’s development and application. The writeup also attempts to answer relevant questions raised by managers concerning the Balanced Scorecard.
Too many Key Performance Indicators (KPIs) are used to measure our activities. How do we ensure that the proper KPI is chosen and that everyone agrees to it?
Considering the strategic objective a team seeks to achieve, a good performance measure ought to reflect what matters most to team members. Always place what matters most to the team alongside the various KPIs that confuse the team. The KPI to use best captures the team’s performance target. Team members should brainstorm and agree on the KPI that meets this criterion and commit to its use.
Some organisations, managers, or influential individuals or departments seek to develop measures for the rest of the organisation. This is very improper. No individual, unit or department can adequately provide the information needed to create a BSC that will effectively serve the interest of all. If an organisation allows few individuals to develop measures, it risks falling into a group think. It is always better to engage all stakeholders, if not all team members, in brainstorming sessions to develop performance measures.
How do we sustain the initial benefits of applying the BSC after the consultants who developed it leave?
The BSC is not a quick-fix tool; it is a process. However, many managers expect to use it to achieve short-term business goals. When this is impossible, these managers show less interest and discount the potential of using the BSC to achieve even their long-term business goals. This usually happens when the driving force of its implementation (in most cases, the consultants) leaves.
In a particular training session, participants suggested various approaches for sustaining the gains of implementing the BSC. A pragmatic approach is to constitute a BSC team to work with the consultants from the BSC programme’s initiation, design, development and implementation. The BSC team would then run the programme once the consultants leave. A good BSC team will typically comprise an executive sponsor, a BSC champion and representatives of all units and departments likely to benefit from the programme.
A BSC team is necessary to anchor the development and implementation of the Balanced Scorecard. However, to function effectively, they need to have the capacity to train, to communicate and to measure performance. The BSC team must also have the ability to sanction non-compliance if necessary. In doing this, the BSC team should ensure that it does not translate into parallel organisational management.
How does the BSC benefit my business as a Small and Medium Scale Enterprise (SME)?
This has remained a recurring question since the development of the BSC. Managers are dissatisfied with the usual answer that the BSC applies to all businesses, including SMEs. Managers know the origin of the BSC and that it was initially developed for use in large corporate organisations. So, they will remind you of the marked differences between SMEs and large corporate organisations in structure and needs. The high cost of developing and implementing the BSC is usually a matter of concern to SMEs.
There are other challenges SMEs face in developing and using the BSC, such as identifying practical aspects of the BSC that are peculiar to their businesses. SMEs seeking to develop and implement the BSC must weigh its need (the expected benefits) against the cost of doing so. If they choose to proceed, they should tailor their need for the BSC to the peculiar circumstances of their businesses. They must, however, keep it very simple.
How do we sustain executive management commitment to implementing the Balanced Scorecard?
There are always concerns about the need for executive management commitment towards successfully implementing the BSC. Without organisational management commitment, achieving reasonable results in implementing the BSC is difficult. As a strategy tool, implementing the BSC is essentially an executive function. Despite this, it is sometimes difficult to get top management executives to commit to the processes leading to the successful implementation of the programme. This is usually because of the competing demands on their time.
Ideally, executive management initiates programmes like the BSC. However, it is usually the responsibility of managers to drive the process. Managers must, therefore, find ways to sustain executive management’s interest in the project. One way of achieving this is by regularly presenting evidence of incremental benefits (say in performance improvement) derived from the application of the tool. Other suggestions are welcome.
I believe many have encountered several of these challenges in developing and using the BSC. Kindly share your thoughts and experiences.
This article was originally published on LinkedIn
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