There is really nothing wrong with the concept of Balanced Scorecard. The main problem is that it does not provide practical guidance for deployment, and some executives view it as a "quick fix" that can easily be installed in their organizations. Implementing a balanced metrics system is an evolutionary process, not a one-time task that can be quickly checked off as “completed”. If executives do not recognize this from the beginning and fail to commit to the long term, then the organization will realize disappointing results. However, some approaches (e.g. Rummler-Brache) allow for a rapid start to the metrics system evolution.
Here are some of the key issues I have seen over the past several years that can cause a Balanced Scorecard initiative to fail:
Poorly Defined Metrics
Metrics need to be relevant and clear. They should be depicted with visual indicators that are easily understood. In addition, metrics need to be collected at the ideal frequency for making decisions, and defined in such a way that the measurement can be consistently applied across the firm, even if their targets of performance differ (and they should). A system that has sloppy or inconsistently defined metrics will be vulnerable to criticism by people who want to avoid accountability for results.
Lack of Efficient Data Collection and Reporting
A primary reason that companies overemphasize financial metrics at the expense of other important operating variables is the simple fact that systems already exist for collecting and reporting financial measures. Companies that deliberately plan to define the vital few metrics and commit the resources to automate data collection and subsequent reporting tend to achieve good results. Unfortunately, in most organizations, if collecting metrics data consumes too much time and energy, they will not be captured. That is why it is important to prioritize key performance indicators so you can be confident that your investment in metrics is spent on the information that will be most relevant to improving organizational performance.
Lack of a Formal Review Structure
Scorecards work best when they are reviewed frequently enough to make a difference. If a metric value changes on a daily basis and the variables within the control of management can be affected on a daily basis, then the metric should be reviewed on a daily basis. Additionally, metrics review meetings should follow a standard agenda, with clearly defined roles for all attendees and an expectation that follow through on any agreed upon actions will be monitored at each meeting.
Finally, review of metrics is ideally cross-functional, including peer groups who have a shared responsibility for process results. It is important to begin these meetings as early as possible in the deployment of a new metrics system. Do not wait until all of the metrics are defined, automated and deployed. Start with the metrics you already have defined and with manual data collection, if necessary. This is an important behavior change, which is essential for the success of your metrics program.
No Process Improvement Methodology
The value of Balance Scorecard systems relies on the premise that once performance problems are identified, there is an efficient and effective method for diagnosing and addressing root causes. Solutions can then be developed and performance gaps can be closed. If the organization does not have standard methodologies and toolkits for addressing process problems, the amount of effort required to derive a problem solving approach for each new performance gap could eventually damage the performance improvement program as it will be seen as taking too many resources away from daily operations. When this happens, there can be no adaptation and performance will continue to deteriorate. Using time-tested process improvement methodologies, perhaps in combination with problem solving methodologies (e.g. Six Sigma) can greatly alleviate this problem.
Too Much Internal Focus
One major criticism of the Balanced Scorecard is that it encourages an internal focus. This is not as much an indictment of the principle as it is the way companies put the principle into practice. To help overcome this problem, you should ALWAYS start with an external focus – the view of your organization’s SuperSystem. The goal is to achieve a balance of enterprise level metrics as you assess the organization’s market, shareholders, competitors, employees and stakeholders. Executives will use data about their SuperSystem to assess Strengths, Weaknesses, Opportunities and Threats (SWOT). This will then guide them to gaps in their enterprise level metrics. Then, all other levels of metrics are tested for alignment with the enterprise level metrics, thereby ensuring that even internal metrics link to external performance drivers.
You can drive measurable results in your organization by adopting this more holistic approach to developing a balanced metrics system. The key is to start—today.