from August 27, 2009
In this edition of my blog, we explore 5 MORE of the typical reasons for balanced scorecard failure as well as the ways organizations can help prevent balanced scorecard failure from happening to them.
- Not focusing on the “vital few” - A great balanced scorecard includes a focused set of indicators (16 to 32 maximum) plus the associated strategic objectives. That is, it focuses on the “vital few” elements of an organization’s strategy. In contrast, many balanced scorecards display too many indicators and none of the strategic objectives. While it is quite usual for first draft balanced scorecards to include too much information, most organizations will refine and revise their balanced scorecard over time and with use. Balanced scorecards that do not focus on the vital few will be difficult to understand and use primarily due to a lack of grounding in the business strategy and information overload - making it likely that the balanced scorecard will fail within the organization.
Steps for Success: Adopt a ruthless focus on the vital few when creating, and maintaining, your balanced scorecard.
- Not changing balanced scorecard indicators when required - Statistics show that 90% of initial balanced scorecard indicators will change over a year of balanced scorecard use. This is because some indicators that you originally thought would be good do not tell you what you thought they would and some indicators that you thought would be “bad” turn out to be great sources of strategy management information. The key is to give balanced scorecard indicators a chance to prove themselves (usually three balanced scorecard reporting periods) but to not hold on to the less than informative indicators for too long. Keeping bad indicators on your balanced scorecard just to develop trend data is a path of balanced scorecard failure.
Steps for Success: Always keep your balanced scorecard useful and relevant by replacing bad/unhelpful indicators when required.
- Using balanced scorecard performance results to “punish for underperformance” - Though tempting, instances of indicator under-performance should not be used to blame or punish the “owner” of the indicator. The fact is that indicator under-performance tends to be caused by systemic, organizational problems and process breakdowns – not people performance issues. Taking such a blaming approach causes people to fear the balanced scorecard, making them take extraordinary steps to hide under-performance at all costs. Good balanced scorecard organizations understand that indicator under-performance actually provides them with an opportunity – to highlight strategically important issues requiring targeted attention and resource allocation to achieve improved results. In these organizations, concerns are not raised when indicators underperform – they are raised when root cause analysis work is not done and/or when sufficient corrective action plans are not implemented.
Steps for Success: Focus on building a culture that shares, discusses, and deals with balanced scorecard/organizational performance issues in an open and constructive way.
- Treating the balanced scorecard effort as a project and not assigning adequate resources to the ongoing use of the balanced scorecard - Many organizations treat the development of the balanced scorecard as a project – they assign a project leader to manage the process of balanced scorecard development and release the resources when the project “ends”. Furthermore, once balanced scorecard development has been completed, they do not formally assign resources to supporting the implementation and ongoing management of the balanced scorecard. It is important to realize that balanced scorecard utilization is a business management process that must be managed like any other process if it is going to function optimally. To ensure its success, the balanced scorecard must have, at minimum, assigned roles including a balanced scorecard executive sponsor, a balanced scorecard champion/manager, and a balanced scorecard administrator. These roles should be formally assigned early in the balanced scorecard development/implementation process.
Steps for Success: To ensure the sustainability of the balanced scorecard in your organization, resource it adequately from the start.
- Not communicating/sharing the balanced scorecard/balanced scorecard results across the organization and not making the balanced scorecard the “way we work” - The balanced scorecard is meant to be shared and used across an organization – this is the only way that is can play its role in facilitating dynamic strategy management. Many organizations make the mistake of using the balanced scorecard and balanced scorecard results at the senior executive level only. Successful organizations include employees and stakeholders in balanced scorecard results meetings and discussion forums and communicate their balanced scorecard widely to a broad range of internal and external audiences. In addition, high performing organizations build business strategy, leveraging the balanced scorecard framework, into as many business processes as possible (e.g. the employee performance management process, the employee reward and recognition process, etc.). When they do this, organizations make the balanced scorecard a highly visible, core component of what they do every day – not a list of measures that sits outside regular business operations.
Steps for Success: Put strategy, via the balanced scorecard framework and results, front and center in your organization and business processes.
Simply following these five additional steps to success will put you and the members of your team on the road to building the focused and sustainable balanced scorecard your organization needs to manage strategy successfully!