The Balanced Scorecard: Do’s and Don’ts

In a book published in 1996, The Balanced Scorecard: Translating Strategy Into Action, Robert S. Kaplan and David P. Norton developed in much greater depth and detail a concept they introduced previously in an HBR article (January/February, 1992): the balanced scorecard. As they explain in their Preface, “the Balanced Scorecard [BSC] evolved from an improved measurement system to an improved management system.”

The distinction is critically important to understanding this book as well as The Strategy-Focused Organization which they later wrote. Senior executives in various companies have since used the Balanced Scorecard as the central organizing framework for important managerial processes such as individual and team goal setting, compensation, resource allocation, budgeting and planning, and strategic feedback and learning. When writing this book, it was the authors’ hope that the observations they share would help more executives to launch and implement Balanced Scorecard programs in their own organizations.

As explained in the book’s Appendix, “Building a Balanced Scorecard,” That process consists of a series of specific “tasks”: (1) selection of the appropriate organizational unit, (2) identification of the SBU/corporate linkages, (3) completion of the first round of interviews during which key executives are briefed on the Balanced Scorecard program, (4) evaluation by the program’s “architect” and other members of design team of feedback from various interviews, (5) conducting a “first round” workshop for the top management team, (6) conducting meetings during which the “architect” works with several subgroups, (7) conducting a “second round” workshop for members of the top management team, their direct subordinates, and an appropriate number of middle managers, (8) formulating the implementation plan, (9) conducting the “third round” workshop, and finally (10) Finalizing the implementation plan.

In terms of using a Balanced Scorecard, here is what Jeremy Hope and Steve Player recommend.

Actions to Avoid

o  Avoid key performance indicator (KPI) scorecards.
o  Don’t cascade scorecards down or aggregate scorecards up the organization.
o  Stop using the scorecard as another tool of command and control.
o  Stop basing the scorecard process on annual targets and measures.
o  Remember that strategy is more about innovation and initiative than incremental improvement.
o  Avoid a collision with the budget.
o  Stop forcing cross-company coordination.
o  Avoid using too many measures.
o  Following the order of strategy or purpose-measurement-goal-action.
o  Don’t rush into using personal scorecards.
o  Don’t rush into linking incentives to scorecard goals and measures.
o  Don’t assume a verifiable link between nonfinancial indicators and financial results.

Actions to Take

1. Use corporate scorecards to set directional goals.
2. Translate rather than cascade goals, metrics, and actions.
3. Use the scorecard to empower teams.
4. Use the scorecard to define a team’s success
5. Use the scorecard to set ambitious [i.e. “Stretch,” BHAG] goals.
6. Use the scorecard to find key value drivers.
7. Use the scorecard to find the best KPIs.
8. Use the scorecard to derive action plans.
9. Add perspectives if it makes sense.
10. Ensure that data are accessible, clean, and accurate.
11. Engage everyone in the scorecard process.

*     *     *

For a thorough discussion of the Balanced Scorecard and 39 other major business topics, I highly recommend Hope and Player’s Beyond Performance Measurement: Why, When, and How to use 40 Tools and Best practices for Superior Business Performance, published by Harvard Review Press (February, 2012).

Posted in

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: