We will start our balanced scorecard journey not from performance measures but from the results we want the organization to accomplish. In other words, we will start with the end in mind, not with the measures we currently have.
The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and non-profit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals.
The key problem identified in business is that many companies tended to manage their businesses based solely on financial measures. While that may have worked well in the past, the pace of business in today’s world requires more comprehensive measures. Though financial measures are necessary, they can only report what has happened in the past; where a business has been, but not where it is headed. It is like driving a car by looking in the rear-view mirror.
The characteristic of the balanced scorecard and its derivatives is the presentation of a mixture of financial and non-financial measures each compared to a ‘target’ value within a single concise report. The report is not meant to be a replacement for traditional financial or operational reports but a succinct summary that captures the information most relevant to those reading it. It is the method by which this ‘most relevant’ information is determined (i.e., the design processes used to select the content) that most differentiates the various versions of the tool in circulation. The balanced scorecard also gives light to the company’s vision and mission. These two elements must always be referred to when preparing a balance scorecard.
As a model of performance, the balanced scorecard is effective in that “it articulates the links between leading inputs (human and physical), processes, and lagging outcomes and focuses on the importance of managing these components to achieve the organization’s strategic priorities.
Modern balanced scorecard thinking has evolved considerably since the initial ideas proposed in the late 1980s and early 1990s, and the modern performance management tools including Balanced Scorecard are significantly improved being more flexible (to suit a wider range of organisational types) and more effective (as design methods have evolved to make them easier to design, and use).
Adapting one organisation’s balanced scorecard to another is generally not advised by theorists, who believe that much of the benefit of the balanced scorecard comes from the design process itself. Indeed, it could be argued that many failures in the early days of balanced scorecard could be attributed to this problem, in that early balanced scorecards were often designed remotely by consultants. Managers did not trust, and so failed to engage with and use, these measure suites created by people lacking knowledge of the organisation and management responsibility.
Performance measurement balanced scorecards are not very interesting, and add little business intelligence to help an organization chart strategic direction and measure the progress of strategic execution. Balanced scorecards built with the goal of “organizing the measures we have” hardly justify the energy it takes to build them.