Having been a Balanced Scorecard practitioner, and as a Strategy Management consultant, one of the things I know for sure is that the EASIEST part of an organization’s Balanced Scorecard journey is deciding to adopt the Balanced Scorecard and its approach to strategy management.
The first challenges arise when it comes to actually selecting indicators to represent and reflect your strategy. However, this pales in comparison to the effort and decisions required to implement a Balanced Scorecard and get to the point where you are actually producing a Balanced Scorecard with real data that (1) provides meaningful insights into the health of your strategic objectives, and (2) enables high quality, strategy-focused organizational conversations and learnings.
It’s for exactly this reason that I encourage my clients to begin their initial Balanced Scorecard efforts leveraging, where possible, existing relevant metrics (most organizations I work with have lots of good existing metrics to work with/choose from). When you are able to use existing metrics on your Balanced Scorecard, indicator detailing is much easier (though not without its challenges) and data collection processes are already established. Using existing metrics as indicators on your Balanced Scorecard means that you can get your Balanced Scorecard up and running faster, and with less effort, than you would if you created your indicators from scratch.
It also means that you can focus your Balanced Scorecard implementation efforts on developing the new organizational capabilities required to get the most out of Balanced Scorecard utilization – things like writing really great results commentary, and building the leadership skills required to ask the right questions and explore the strategic implications of Balanced Scorecard results.
Another good reason for beginning with existing metrics is that, through experience, I have learned that you will see significant turnover in your initial Balanced Scorecard indicators over your first year of Balanced Scorecard use.
One reason is that indicators that looked good on paper turn out to be duds when you actually start using them. That is, they don’t tell you what you thought they would or they don’t provide you with actionable information. People often ask me if there’s a way to get around this dilemma and unfortunately there isn’t. Based on what I’ve seen time and time again, it’s virtually impossible to assess an indicator’s true utility and informational value before you begin using it.
Another reason for high indicator turnover is organizational maturity – both as a Balanced Scorecard user and as a functioning organization. Over a year your organization will introduce new business processes and improve others, giving you new opportunities, and options, for improved performance measurement. Changing your Balanced Scorecard indicators as your organization changes is a way of adding enhanced insights into how your strategy is working into your Balanced Scorecard.
For all these reasons, it just makes sense to start off your first Balanced Scorecard with existing metrics wherever possible – it reduces your indicator development costs and risks, places less of a burden on your organization during Balanced Scorecard implementation, and it accelerates your Balanced Scorecard use learning curve.
Sometimes, however, organizations balk at the idea of going through the process of trying out and shedding Balanced Scorecard indicators – it feels messy and wasteful.
Instead, they’d prefer to complete a fact-based project to define the perfect enduring indicator for the strategic objective or objectives in question. They want to undertake an exhaustive literature review, best-practice benchmarking activities, and robust indicator testing before implementing the best possible indicator(s). Often these types of activities can take up to a year’s time to complete with significant investment. The downside with this approach is that your organization is flying blind without a window into strategic objective health until that perfect indicator is ready for launch.
The problems with taking this approach are obvious – some for the reasons I outlined above.
However, the biggest issue for me is that the search for the “perfect” indicator is a waste of time and effort because the definition of the perfect indicator for your organization will change over time. While you will always be looking for indicators that are representative of the strategic objective they relate to, what you choose to actually measure at any given point in time will naturally reflect the current realities of your business operations and your existing processes.
That is, unless you are willing to implement the best practice processes that support your ability to gather the data required for your perfect indicator. Practically, most organizations I know don’t have the capacity to engage in such efforts.
More importantly, there may not be real business value in implementing the best practice process required to support your measurement ideal – the ROI for you and your customers or stakeholders may just not add up. I think that this is the most important message that gets lost when organizations get caught up in benchmarking activities and best practices implementation.
If your organization is delaying Balanced Scorecard implementation and use while you search for ideal indicators I would encourage you to stop now. If you are like most organizations I’ve seen take this approach, your search for perfect Balanced Scorecard indicators is an indicator itself – often of an organizational culture that sacrifices action for perfectionism and is extremely fearful of risking “failure” of any kind.
A more productive approach to the Balanced Scorecard is to see it as an opportunity to learn, improve, grow, and iterate. While you must do some real work to lay the right foundation, you’ve just got to jump in and get started where you are right now as an organization and develop your Balanced Scorecard from there.
It turns out that when you embrace the Balanced Scorecard and the messy journey that it is (rather than try to exert extreme control over the process), that’s when you’ll actually experience the best benefits and Balanced Scorecard outcomes possible!