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By GSMIweb on 22-Apr-10 02:49.
HOW TO BUILD A BALANCED SCORECARD by Arthur M. Schneiderman Introduction The balanced scorecard (BSC) has undergone significant change since its widespread popularization in the early 1990s. Although the first balanced scorecard was an integral part of its creators' strategic planning process, its subsequent emulations focused on it as a simple instrument rather than as one element of a total planning system. Consequently, most early adopters just took their myriad of existing non-financial performance measures and force-fitted them to an arbitrary framework that classified scorecard metrics into the prescribed categories of financial, customer, internal, and learning and growth. I've chronicled elsewhere the resulting common failure modes. Number one on that list was: "The independent (i.e. non-financial) variables on the scorecard are incorrectly identified as the primary drivers of future stakeholder satisfaction." Unfortunately this fundamental misapplication of the BSC concept is still all too prevalent. However, academics, consultants, and practitioners alike have learned much over the last dec
Juggling Balanced Scorecard Metrics© by Arthur M. Schneiderman Back in 1988, I was shown a monthly metrics report by the VP of Quality Assurance from a large mid-West US bank. The report (more than 50 pages long, as I remember) contained nine graphs per page and the pages were beautifully bound into a glossy, full-color publication. She was really proud of this output from her department. I'm sure that everything that could be measured was. It reminded me of the old army directive: "If it moves, measure it; if it doesn't, paint it." Flipping through the many pages, one thing stood out clearly to me: virtually all the graphs were flat. The data scattered randomly around a horizontal line drawn at their precise mean. For each of the graphs, there was a horizontal line located at a target value. The resulting gap between current performance and this target remained essentially constant. The report left me with three messages: TQM was not being practiced by the people being measured, the goal setters didn't recognize the importance of establishing specific milestone dates for their goals, and the bank's management did not understand the concept of organizational capacity and the consequent importance of focusing on the "vital few."
Must Your Scorecard be Balanced? by Arthur M. Schneiderman An edited version of this article appears in strategy+business Background Conventional wisdom1 mandates that a scorecard contain a balance of: financial and non-financial, lagging (results or retrospective) and leading (process or predictive), externally (customer) and internally (processes) focused, and short-term and long-term metrics. It also demands representation within a prescriptive framework; most often financial, customer, internal, and learning and growth. But is this really necessary? Let's first look at the origins of the "balanced" part of the scorecard. The balanced scorecard resulted from the confluence of three streams of late 1980's management thinking: • Total Quality Management (TQM) practitioners were discovering that non-financial measures were much more useful in the day-to-day management of their organizations ("you get what you measure") and were struggling with determining the vital view metrics that they should use in steering their organization's limited resources. • Accountants where loosing both the eyes and ears of management to the new non-financial measures2 and were failing in their effort to regain their past prominence by reengineering traditional product cost systems3 (Activity Based Costing) in light of the compelling criticism by both internal and external advocates of the Theory of Constraints (TOC). • IT professionals were desperately seeking non-transactional IT applications to expand their internal market from operations to management in the hope that that would forestall their eventual relegation to a part of those operations. The first balanced scorecard was created in 1987 to address the first of these issues. Although it was "balanced" in the current sense, its inclusion of financial measures was for pragmatic not conceptual reasons (see "How the Scorecard Became Balanced"). Three years later it was discovered by a collaborating accounting professor and IT consultant, who recognized that it also provided a solution to both of their professions' most pressing challanges.
Perspectives on the Balanced Scorecard© by Arthur M. Schneiderman I have several working hypothesis on the balanced scorecard: • Analog Devices scorecard implementation (1987-1992) is still a best practice. It contained all of the popular elements identified by today's balanced scorecard promoters including: • top-management ownership of the processes for creation and management of the balanced scorecard, • a complete set (the vital few) of rigorously defined metrics that characterize progress toward its strategic objectives, • a clear and compelling story linking these metrics to Analog's Corporate Objective and business strategy, • a rigorous process for setting aggressive long-term, intermediate and short-term goals (the half-life method) consistent with organizational capacity and resource requirements, • deployment of scorecard goals to individual action agents and their knowledge based personal ownership and commitment to achievement of these goals, • a state-of-the-art improvement process for achieving the highest possible rates or improvement on scorecard metrics, • a formal process for its ongoing refinement.
The Balanced Scorecard: An Approach for Linking Strategy to Action ...or is it?© by Arthur M. Schneiderman An edited version of this essay appears at Optima Media Group's Scorecard strategy website Introduction Visit most any mid- to large-size organization and they will proudly describe their balanced scorecard (BSC). Ask them what they use it for and you will get a response (uncomfortably reminiscent of the drone from brainwashed characters in the 1950s movie The Manchurian Candidate): "We use it to link strategy to action." Dig a little deeper and they will tell you that they read a business article, attended a conference, or hired a consultant and that's where they learned about this great new business tool. But don't stop there. Ask them how they went about creating that scorecard and how they use it in their day-to-day management and the picture will start to become fuzzy. Probe even further and ask to see their BSC process flow diagram and you're likely to get nothing more than a blank stare.
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