The Balanced Scorecard (BSC) is a new buzz-word that stands for the performance management magic pill. Many books on management praise this business concept and report an impressive adoption rate by Fortune 1000 companies. When it comes to practice it appears that only top management in the company knows about the Balanced Scorecard and it is used at a minimum of its potential.
Balanced Scorecard and its Real-Life Adoption
Here are a few words about the Balanced Scorecard. It was introduced in the 90s by Drs. Kaplan and Norton, and has suffered 3 major upgrades. Now the Balanced Scorecard is a buzz-word for anything from KPIs to a plain strategy map. I personally like it in all of its reincarnations, especially when it helps real businesses improve their business performance.
I have never seen a classical Balanced Scorecard working in the company, whether it is a Balanced Scorecard for an international retailer like Tesco (the Steering Wheel published yearly) or the BSC for a small business - all professionals can adopt it to their own needs by introducing modifications, so that in the end you cannot call it a Balanced Scorecard, but who cares when it helps.
Strategy Design for the Balanced Scorecard
Let's review Balanced Scorecard design process part by part. Take from this story something that you like and then use it in your business today to see if it works for you.
Sometimes the only strategy you have is to try something out and then wait and see what will happen. Most start-ups follow this idea and call it a strategy. Don't worry, this is a strategy as well, and a Balanced Scorecard still will be useful.
The "Balance" Thing
Do you know why there is a word "Balanced" in the name of the concept? It's because it is supposed to give a "balanced" top-view of the business. If you are a VP of Sales, check out your dashboard or strategy map right now.
That's the key idea about the balanced approach. Don't just take KPIs from industry leaders, which are normally financial ones. Instead develop your strategy first and then add KPIs that will make sense to your business. Make sure that there is a 360 degree view of your business, not just a narrow scope on finance.
Action Plan with Initiatives and KPIs
The next step is explaining how you are going to achieve strategic objectives and how will you know if you are on the right track. You will need an action plan and KPI (Key Performance Indicator).
A piece of advice about KPIs: use descriptive names. Ethan Rasiel in "The McKinsey Way" described some best practices for presentation design, such as naming the chart in a more descriptive, action-oriented way. For example, instead of "Slide 1. Sales in China," it is better to use "5% sales growth in China gives us opportunity to sell more of product A." Apply the same idea to a KPI, it will work only when the name of a KPI is descriptive and anyone in your company can understand what it is about.
Another typical pit fall for the KPI is that it is not easy to measure. If it takes few hours to calculate the value of the KPI, believe me, in few months you will stop using it. Consider using several simple KPIs and their combinations instead using one complex KPI.
Get the Balanced Scorecard From Sky to Earth
The question is how is the Balanced Scorecard supposed to appear on the desktop of the line-level sales manager? The Balanced Scorecard was invented as a tool for top managers. If only top managers have access to the Balanced Scorecard then it is questionable if it might be useful for line level employees.
The solution to this problem is cascading. Your sales department won't be able to use a copy of BSC for top managers. The strategic objectives from the top management's scorecard should be translated to the lower level, giving employees of the department level their part of the business opportunities and problems. Normally, a local version of the Balanced Scorecard is created, and that feeds its values to the top level scorecard.
Working for the result instead of just doing job
Now ask someone in your department why he or she is doing what he is doing now? If the person fails to give a good answer consider this as a sign that your Balanced Scorecard still doesn't work.
Ideally, each employee should understand what the purpose of the job is and how his or her efforts will help to achieve the ultimate goals of the company.
Compensation and reward with the Balanced Scorecard
I saw many attempts to link compensations and rewards to KPIs of the Balanced Scorecard. Unfortunately, it is still not recommendable for the general practice because of employees who are smart and like to play with KPIs.
There are also case studies about linking compensation plans for top managers to BSC's KPIs. In this case a reward scheme is always complex one, it takes in account all aspects of the business and the recommended mix is 70-80% of financial KPIs with 30-20% of non-financial indicators.
How to monitor the system that is monitoring your business
How will you know that your Balanced Scorecard works for you? I believe that the best thing you might see is the improvement in employees’ engagement. Employees like it when the task and progress evaluation method is clear. You will see that people will start to help to achieve your business goals, instead of just doing their job. The most important thing is that you will see that the management process becomes more transparent and controllable.
Give it a try
In the beginning of the article I've mentioned Balanced Scorecard to be a buzz-word. In a few years the buzz-word might become less popular, but I believe that key ideas of this business concept are worth trying in any business.
Most Balanced Scorecard implementations that I saw don't follow the classical framework, but these companies take some important ideas that help to engage employees more and to see things from a strategic point of view. Try it for your business and see if you can benefit from it.
Aleksey Savkin is a founder of AKS-Labs, vendor of BSC Designer software and tools for software engineers. His areas of expertise are remote team management, Balanced Scorecard, KPIs, business performance management, general info-business development and marketing. Aleksey is the author of a number of articles and books on Balanced Scorecard. He runs Balanced Scorecard seminars in the Moscow Business School (MBS).