Some industry analysts and organizational executives have questioned the effectiveness of the balanced scorecard. The tool, introduced by Robert Kaplan and David Norton in 1992 in an article in the Harvard Business Review, is used to articulate to individual employees the organizational goals and objectives set by management.
But some modern critics of the balanced scorecard have gone as far as to proclaim that it no longer possesses the potency to fill this communication function. Others have argued that the effectiveness of the scorecard has been overhyped by software solution providers and consultants who have promised quick fixes to problems associated with strategy execution.
After reviewing these arguments and accusations, a logical question arises: Is the balanced scorecard dead?
Elements of Scorecard Survival
By asking if the balanced scorecard is dead, an individual is really asking whether or not it has completely lost its effectiveness in driving organizational transformation and strategy execution. For this specific question, the answer is not simple. To derive an answer, a different question has to be asked: Can the balanced scorecard die? The answer to this question is yes.
Any successful scorecard implementation has two requisites: a commitment from leadership and organizational buy-in. The leadership has to believe the balanced scorecard will communicate strategy and the organization has to feel that it will bring positive results. When leadership is lukewarm on the scorecard or if there are significant personnel changes in the executive ranks, there can be a serious lack of continuity, which can disrupt and even end an implementation. Also, if an effective business case is not made to the organization for the adoption of the balanced scorecard, individuals may perceive it as a system that will create bureaucracy and enhance the difficulty of their daily jobs. Behind every effective implementation, there is a commitment from leadership and there is buy-in from organizational business units and individuals. Without these key elements, the balanced scorecard dies.
Scorecards and Dashboards: Know the Difference
While critics of the balanced scorecard have been quick to accuse software solution providers and consultants of falsely describing its benefits, they have neglected to acknowledge the confusion that exists in the marketplace between scorecards and dashboards. As organizations have sought to automate their performance measurements, the terms scorecard and dashboard have been confused with one another and used interchangeably. This confusion has damaged the perception of the balanced scorecard. Some companies have implemented dashboards with the expectation that they would yield the same results as the balanced scorecard.
But according to performance management expert Gary Cokins, there is a clear distinction between dashboards and scorecards: Scorecards display organizational performance as it relates to strategic objectives and plans (key performance indicators are typically derived from a strategy map and have a relation to one another), while dashboards are focused on measuring the performance of business processes through measurements that do not have a clear link to strategy. By understanding this distinction, organizational executives and managers can set reasonable expectations for their scorecards or dashboards.
Signs of Life
So if it is possible for the balanced scorecard to die in an organization, what signs show that it lives? A living scorecard fulfills numerous roles, including:
- Communication system and framework – The balanced scorecard communicates organizational progress and results through leading and lagging indicators segmented into four perspectives: financial, customer, internal process and learning/growth. Employees can gain an understanding of how their efforts contribute to organizational progress and success as communicated through these performance measures.
- A process that drives change – Using the balanced scorecard, executives and managers are able to break organizational strategy down to understandable terms and manage change by implementing initiatives derived from a strategy map.
- A measurement system – The scorecard reports on past operating performance and the drivers of future performance.
Set Reasonable Expectations
Ensuring the effectiveness of the balanced scorecard is about creating performance measurements, as well as linking the organization to strategy. Skepticism has developed over the scorecard because unreasonable expectations have been tied to it. On the journey to strategy execution and performance improvement, there are no easy or quick solutions. By gaining the commitment of leadership, the support of employees and putting forth the effort to translate strategy, the balanced scorecard can live in an organization and generate results.