Is The Balanced Scorecard Obsolete?

Measuring performance of a modern business.

featured image

The balanced scorecard (BSC) has been our go-to instrument for analysing business performance. Is it able to measure complexities of a modern business?

Before we dive into the viability of the Balanced Scorecard, let’s talk reality. Psychotherapist and Forbes contributor Amy Morin claims that:

“…the way you think about yourself turns into your reality.
If you draw inaccurate conclusions about who you are and what you’re capable of doing, you’ll limit your potential.”

If Morin is right, does what you measure limit the dynamics of your business?

Consider this. Between the 1950 and 70s, most CEOs would have told you that financial health was the only metric that mattered.

resume writing services

Ah, the Industrial Age. A simpler time, indeed. But by the mid-80s, Jack Welch began to sense something was amiss. His strategic planning department at GE was filled with 200+ senior executives who were mired in financial details.

Vision was nowhere in sight.

So Welch nixed the department and shifted the strategic planning work to the business unit leaders. The line leaders were, as Welch saw it, closer to the employees and the customers.

No doubt this was a landmark move for GE, and for the future of corporate strategy. Actually, though, bigger changes were afoot.

Enter The Information Age.

In the wake of Welch, take a mental trip back to 1992.

The smartest companies were undergoing massive transformations to compete in the newly dawned age of information.

For the first time in business history, companies were better equipped to exploit intangible assets (knowledge) than physical assets (products).

Two strategic innovators and Harvard Business School professors seized the moment. Robert Kaplan and David Norton put their heads together and created a holistic new way for businesses to measure success.

The Balanced Scorecard.

Kaplan and Norton spent a year working with 12 companies who, in 1992, represented the leading edge of performance measurement.

Out of that work was born their famous strategy tool called the Balanced Scorecard (BSC), which enables leaders to view their business from four distinct yet interdependent perspectives:

  • CUSTOMER: How do customers see us?
  • INTERNAL: What do we need to excel at?
  • LEARNING / INNOVATION: How can we continuously improve?
  • FINANCIAL: What do our shareholders think of us?

Hmm. It sounds so simple, right? Almost obvious.

It stands to reason that if you’re only tracking dollars, your innovation might suffer. Employee engagement might go down. Customers might feel neglected. And, ironically, your profits might suffer.

However, the sheer simplicity of the tool seems to be the very reason for its success.

In fact, by 2012, almost 70% of all major companies globally use the BSC—with, according to Bain & Co., most of them hailing from the US, the UK, Northern Europe and Japan.

But You’re In Australia. And It’s 2018.

Is the Balanced Scorecard still relevant to your business? The answer is…it depends. On the state of your organisational strategy, that is.

To determine this, keep your eyes and your mind open as you read the points below.

5 Benefits Of The Balanced Scorecard:

1. Transparency At All Levels.

Ask anyone on your team if they could explain your operational strategy and I’m willing to bet most of them would be stumped.

The clarity of the BSC can lend employees the broader context they need to tie their work to the big picture and, as a result, be more effective in their roles.

 

2. Holistic Approach To Growth.

As we all know, gone are the days when any business could look at one metric (i.e. financial health) in isolation and expect success.

Including people and innovation in the mix broadens everyone’s view of what’s possible which can only bring positive outcomes for the bottom line.

 

3. Alignment Between Mission and Execution.

Kaplan and Norton christened the Balanced Scorecard the “framework of frameworks”. Regardless of your business, it can clearly outline what you’re doing now and how those activities will differ in the future.

Which means high-level goals can finally be translated into tangible outcomes.

 

4. A Single Plan.

Tracking too many metrics? Operational plans floating around that don’t tie to your mission and vision? Most companies suffer from this strategic ailment.

The BSC can bring them all together into one easily comprehensible snapshot.

 

5. Room For Customisation.

This is the most powerful benefit the BSC offers to any business leader in 2018. Since no two organisations are the same, you can simply adapt the framework to your needs. For example: Customer could be broadened to include Corporate Sustainability.

Internal or Learning and Innovation could encompass Employee Experience.

But here’s the good news / bad news.

Customising your BSC demands that you actually have a strategy—not just a set of metrics.

The Need for Strategic Intent.

We’ve all worked with those people who go around talking about how strategic they are. As if merely uttering the words “strategic” and “strategy” often—and at opportune instances—were enough to make it so. And indeed we established earlier that thoughts drive reality – not words.

So before we move on, are you crystal on why you’re measuring what you’re measuring? What’s your strategic intent?

Not sure? Read on.

Like it or not, it’s a term with its roots in the military. Starting with the phrase, Commander’s Intent:

“The commander’s stated vision which defines the purpose of an operation, the end state with respect to the relationship among the force, the enemy and the terrain; it must enable subordinates to quickly grasp the successful end state and their part in achieving it”.

Source: Wikipedia

In civilian terms, the commander sets the strategy with his or her intention.  It’s then up to the boots on the ground to bend and flex with changing circumstances to achieve the mission. The goal is stated, but the means to that end is a creative endeavour.

Leadership expert Gary Hamel, in a 2005 HBR article, coined this spirit for the corporate world as strategic intent.

According to the Hamel, strategic intent manifests as a drive to be the world’s best.

  • It’s why America beat Russia in the race to land a man on the moon.
  • It’s why Japanese cars blew Detroit out of the water.
  • It’s why Coke (unfortunately) can be consumed in every nook and cranny of the globe.

Hamel feels that traditional strategic planning draws its inspiration from the present moment, even though it’s purported as a future-focused endeavour:

“The goal of strategic intent is to fold the future back into the present. The important question is not “How will next year be different from this year?” but “What must we do differently next year to get closer to our strategic intent?” Only with a carefully articulated and adhered to strategic intent will a succession of year-on-year plans sum up to global leadership.”

I’ll ask again: What is your strategic intent?

Even if you’re not currently striving for global leadership, intention (as Morin stated at the beginning of our post) creates your reality.

So make sure your strategy actually IS one, before you deem it so.

From Scorecard To Strategy Map.

Now, let’s assume that you’re clear on your strategic intent and your BSC features metrics that support this intention.

To conclude our military analogy, you—as the general of your business—wouldn’t take your troops into unknown territory without a detailed map. Right? Hence the value of a Strategy Map.

At its most basic, you would take your balanced scorecard (BSC) and evaluate the relationships between the major initiatives in your four areas. The interplay between these expresses your strategy.

And the simple act of drawing arrows to depict these intentional flows, and sharing the results, can spark new ideas.

A portion of Mobil’s famous strategy map (below) is a great example of this:

 

balanced scorecard

 

Here’s why it’s much more than boxes and arrows.

Because of their strategy map, a marketing technology manager at Mobil was able to devise an innovation called Speedpass—a tiny device that customers hooked on their keychain.

Wave it in front of a photocell on a petrol pump, and presto. The pump knew who you were and how to charge you for your purchase.

Sure, it sounds outdated now. But in the early 1990’s it was quite an invention developed in large part due to the focus on “Speedy Purchase” called out on the strategy map.

Without the map, the marketing manager would likely have had little or no insight into the bigger picture.

Bringing The Present Into The Future.

Whether your future focus is on Operational Excellence, Safety Culture, Talent Management or Corporate Responsibility & Sustainability, using it as a thematic devise for your strategic intent, BSC and Strategy Map could help employees to embrace your story.

Or, it may be overly complex and cumbersome for where your culture is right now. Or where it’s headed.

It’s up to you.

The point is not so much about sticking to the framework in a literal sense.  It’s about actually having an organisational strategy and using the right tools to articulate it clearly.

To quote David Norton:

“In 1992, the world changed from being a world dominated by products and tangible assets to being a knowledge economy. The knowledge economy, and companies that compete in the knowledge economy, have a very different set of demands.”

Where the world goes from 2018 and beyond is a reality—and a strategy—we’ll all shape together.

 

– Irene

 

Responses:

E-mail is already registered on the site. Please use the Login form or enter another.

You entered an incorrect username or password

Sorry that something went wrong, repeat again!
footer image bg
Google Rating
5.0

Sydney

Arielle Executive
Suite 55, Level 24,
Three International Towers,
300 Barangaroo Ave,
Sydney, NSW 2000

Melbourne

Arielle Executive
Suite 60, Level 9,
440 Collins St,
Melbourne, VIC 3000

(C) Copyright 2018 Arielle Executive.