Typical Balanced Scorecard Pitfalls and How to Avoid Them

There are a number of typical problems that a company’s strategist faces when implementing the Balanced Scorecard framework. Those pitfalls were widely discussed on LinkedIn and it seems that everyone agrees on why those are problems and how to avoid them. But when it comes to identifying and fixing those issues in our own business then it appears to be a tough task. With this article I’d like to start a systematic discussion of typical problems, the ways to diagnose them, and of course, the ways to solve them. I’m sure you have something to add, so feel free to share your thoughts in the comments.

Typical pitfalls of the Balanced Scorecard and instructions to diagnose and avoid them

Pitfall 1. One doesn’t understand the difference between “Strategy” and “KPI” scorecard

This mistake is a good starting point for this discussion. We often hear from users of BSC Designer software something like that:

  • “We’ve created a Balanced Scorecard, but it doesn’t work as promoted by various institutions!”
  • “We did a scorecard, but it seems that performance management doesn’t work for our company!”
  • “Scorecard is good to track KPIs, but it helps only a little with strategy execution”

After a short review it is easy to find out that they have a “KPI” scorecard, not a “Strategy” (Balanced) scorecard. The difference is that the first is a pure measurement tool and the second is a management tool.

  • A KPI scorecard might be or might not be aligned with proper objectives and actions.
  • In  contrast, Balanced Scorecard is about alignment between business goals, actions, and measures.

Similar mistakes

  • Having too many KPIs. Most likely they are not KPIs, but simple metrics (learn the difference).
  • Having KPIs that are aligned with neither strategy nor action. Here are some best practices.
  • Believing in KPIs too much and losing the big picture of what’s actually going on. Here is a good example.
  • Having only lagging indicators. You need to have leading indicators as well.
  • Having financial KPIs only.
  • Not using strategy map with cause-and-effect connected objectives.

Diagnosis of the mistake:

  • Review the “Similar mistakes” section to find out if something can be applied to your scorecard.
  • If your business scorecard consists of KPIs only, then you have KPI scorecard, not a Balanced Scorecard.

Solution to the mistake:

  • You need to shift from measuring to managing. Think about  how your strategic goals are linked to specific objectives. What are you going to do to achieve them (you action plan)? How are you going to measure the process and the results (KPIs)?
  • Read “The Strategy Focused Organization” [1] to learn the benefits of a strategy scorecard compared to a KPI scorecard.

Pitfall 2. Promoting silo thinking

Ideally, strategy should be everyone’s job in the company. In  practice we see that many promote “silo thinking.” Instead of discussing strategy and finding the best way to execute it and track the execution progress, top managers tend to isolate strategies from each other and from their employees. They want people to see only their part of the job, and as a result, it is not a surprise that strategy is not executed properly.

Similar mistakes

  • A Balanced Scorecard that you have is used exclusively by top managers
  • The Balanced Scorecard was prepared exclusively by top managers without working with those who will execute this strategy
  • Poor vertical alignment; according to the recent research, 54% of interviewed executives mentioned this problem.

Diagnosis of the problem:

  • Randomly select some employees in your company and ask them about the relationship between their job and the company’s objectives. Ask how they cooperate with other departments to achieve those objectives. If they know only their part of the job well and have only a rough idea about the answers to the other questions, then you are facing silo thinking problem.
  • A key test: was your excellent strategy executed properly? If not, then your strategy discussion process need to be updated.

Solution to the mistake:

  • When describing a strategy, involve not only top managers, but also those who will execute this strategy. Try adopting Catchball approach from Hoshin Kanri.
  • Make strategy everyone’s job. Translate the scorecard idea to the lower organizational levels.
  • When two departments collaborate, don’t use just a format SLA agreement. Try to align it with your strategy. For example, in the way it was described here.

Pitfall 3. Description of the bad strategy

Balanced Scorecard is not a strategy definition framework (although it provides some generic strategies); it is strategy description framework. It means that it will certainly help you to understand and describe your strategy better, but it is not a magic pill. If you have no strategy or you have a bad one, then you will just formalize your bad strategy.

Diagnosis of the problem:

  • Have a look at your strategy-related documents. Do you have a description of business challenges that you’ve been facing? Do you have an analysis of possible alternatives to address these challenges? Are these alternatives reflected on your strategy map, in your action plans, and in KPIs? If you are not sure about your answers, then it is a good idea to get back to the strategy itself.

Solution to the problem:

  • First learn to recognize “bad” strategy; Richard Rumelt’s book [2] is an excellent guide.
  • Start from scratch: what problems do you face; how do you think you might fix it; what you need to do; how you are going to track your progress. Learn from this case study.

Pitfall 4. Lack of buy-in

You have a world-class Balanced Scorecard, but the only active user is you. People tend to ignore new technologies and tools that they don’t understand. If you don’t have a buy-in from top managers and line-level employees, your Balanced Scorecard won’t work.

Similar problems

  • Low interest from top management and/or line-level employees
  • Participation of top managers only

Diagnosis of the problem:

  • Is the data in scorecard KPIs updated on time? Are business goals actualized?
  • Do employees use your strategy map when discussing some aspects of strategy?

Solution to the problem:

  • An actual solution depends on the implementation stage. If you are just in the beginning and you need to convince top managers, then show these statistics figures, as they look impressive.
  • Update your strategy discussion process as suggested in “Pitfall 2”; small discussion teams and catchball process will help to generate more meaningful ideas. The rest (the formal description of the strategy) will be much easier.
  • Solve the problem in Pitfall 3; before you can convince others, you need to have a clear understanding of the current strategy.

More pitfalls?

What do you think about these pitfalls? Have you faced any of them? How did you solve those problems? Would you like to add something to the list? Please share your thoughts in the comments.

References

  1. ^ The Strategy Focused Organization, Robert S. Kaplan, David P. Norton, Harvard Business School Press, 2001
  2. ^ Richard Rumelt “Good Strategy. Bad Strategy. The difference and Why it Matters”, 2012, Profile Books LTD

Related Articles

Strategy and KPIs Scorecard Expert | Speaker | CEO. Aleksey Savkin (LinkedIn, @bscdesigner) is helping companies to better formulate their strategies and make the process of strategy execution more tangible with KPIs. His areas of expertise are Balanced Scorecard, Key Performance Indicators, business performance management. Aleksey is a frequent speaker at conferences; the author of a number of articles and books on Balanced Scorecard. New book by Aleksey: 10 Step KPI System

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