In my previous article, I wrote about why a Balanced Scorecard is a Performance MANAGEMENT framework and not a Performance MEASUREMENT framework. I described the typical three levels of Balanced Scorecard maturity that I see:
- Level 1: A Dashboard – a set of metrics, positioned across four perspectives, selected with little reference to strategy or balance
- Level 2: Drawn from current strategy – a balanced set of objectives, measures, targets and plans derived from today’s strategies and plans, probably created by a “Planning Group” or Balanced Scorecard project team
- Level 3: Strategically designed – a balanced set of objectives, measures, targets and plans derived from a Strategy Map created by the senior management team
Any of the three levels of Balanced Scorecard maturity can add value, but I’d argue that most added value comes at Level 3.
The problem with many Level 1 Balanced Scorecards (Dashboards) is that they simply capture some of “today’s measurements” and many of those might be no use at all in helping the organisation to improve performance, or achieve its strategic objectives (assuming it has some!). People who compile a Dashboard typically include measures that are already available, rather than those that are needed to improve performance.
Dashboards may also be just that – sets of measurements, with no reference to objectives and targets, and probably not linked to any actions required to achieve improvement. In fact, if you’re really unlucky, the chosen set of measures will be driving unwanted behaviours because people may be incentivised to focus on achieving the wrong things.
If you have a Dashboard and expect to see performance improvement happen, you might have a long wait. There are certainly UK public sector examples of what I’d call Dashboards, albeit called things like “Weighted Scorecards” or “Performance Frameworks” that track performance, but do little to help drive improvement.
- Value-add Test 1 therefore is: Does your Balanced Scorecard capture Objectives, Measures, Targets and Plans?
At Level 2, most Balanced Scorecards are at least derived from existing Objectives and Plans. They can be developed fairly quickly as they draw on readily available information sources and they may only require a moderate degree of senior management commitment and involvement in their development phase.
Often, they are designed outside the Senior Management Team, often by a project team, presented to them and then “signed-off” for use by the organisation. They may, if designed well, take into account the organisation’s unique objectives and operating environment and comprise a different set of perspectives to the Kaplan and Norton four.
Where there is good senior management engagement in the design process, there may also be some useful challenge of existing strategies, with a view to making incremental improvements to existing plans. These improvements are likely to include making plans more “balanced” by identifying current gaps, adding “better” measures, by identifying what really needs to be measured, instead of just using existing measures. More balanced also means a set of measures that combine leading and lagging indicators within and across each perspective.
- Value-add Test 2, therefore, is: Do your Balanced Scorecard perspectives reflect what is important to your organisation (are they designed for your needs, are the component objectives balanced and are the measures really useful)?
A key differentiator at Level 3 is that the Balanced Scorecard is designed with a high degree of involvement of the senior management team and they spend time making it work for them, before trying to drive it down too far through the organisation.
Given the higher degree of management involvement, it’s more likely that a Level 3 Balanced Scorecard will have been created as part of a Strategic Planning process, rather than as a bolt-on. Ideally, it will have been developed from a Strategy Map that presents the cause and effect relationships between objectives. It may, therefore, have given rise to more challenge about what is strategically important and encouraged management debate about Strengths, Weaknesses, Opportunities and Threats.
- Value-add Test 3, therefore, is: Do you have a Strategy Map which was the foundation for designing your Balanced Scorecard and is it a clear picture that shows how your organisation’s strategic priorities link together?
I have been helping organisations in the private, public and third sectors to manage and improve their performance management systems for nearly two decades. My support includes the design and implementation of Balanced Scorecards.
I am not wedded to a particular methodology. I help clients identify their improvement goals and then develop an approach to achieve these; invariably ensuring their people develop the skills to make further improvements themselves.