Balanced Scorecard Designer

According to Douglas Hubbard, the foremost expert in the field of business decision support,  “In a portfolio, the investment with the highest return on investment is investment in the information necessary to allocate the investment of the rest of the portfolio.” He argues that up to 5% of any portfolio can be spent on gathering the information necessary to invest the rest of the resources wisely.

This same principle applies to organizational management. A consistent commitment to investing in measurement and feedback systems within the organizations is paramount to good decision making.

But not all investment in data gathering is created equal. Information value inversion is at work. The things that we measure often and fairly precisely, typically have little impact on any crucial decisions. The things we know little about can often net a significant improvement in the decision making by us learning even a little bit more about that information.

Thus, a good Balanced Scorecard can act both as a useful tool and as a waste of money, and unfortunately is often the latter for many organizations.
There are two reasons for it:

1. The Balanced Scorecard is often an after the fact bolt on, it is not part of the core organizational thinking. This is by far the most important problem, since if it is not the key feedback loop but rather one of them, it often serves to create noise rather than reduce it.
2. We tend to measure things that we know how to measure, and more likely than not those are not the right things to measure. There is no scientific approach to determining which things are really worth measuring, we take our best guesses, and typically we are spectacularly wrong. We treat it as an art, yet expect predictably consistently good results, as though it was a science.

What can be done to solve these challenges? Indeed, are they worth solving?
I will start with the second question first. Fundamentally, if you do not solve them with this tool, or some other dashboard, broad multi-variable feedback tool, you are flying blind. While it is dangerous, it does not stand out, since everyone else is too. During the early days of flight, pilots did not have good controls and would often fly along the railroad lines, so that they could rely on the visible landscape and rail station names to navigate. This had lots of problems, but so long as everyone was flying slowly enough, low enough and in familiar enough terrain it worked. However, the circumstances changed, planes fly faster, higher, in more varied weather and can no longer orient themselves in the same way. They have to use gauges on their dashboard and should be able to take off and land without even looking out of the window. This has forever changed the aviation.
In business, until fairly recently we could afford to fly low enough, slow enough and in familiar enough landscape to avoid the need to have useful dashboards. But, not only does this doom your company to continuing to do what you have always done, it may very swiftly obsolete you as others figure out how to do this right. So, ideally, you want to implement the dashboards well because you are aiming for the stars, but if not, implement them well because you don’t want to be left behind.

What about the second question. What can be done so that the Balanced Scorecard becomes the main organizational feedback system and it measures the things that allow the company to safely take off, land, fly and navigate through its difficulties and opportunities, regardless of the outside weather conditions? That sounds like a great topic for the article that will be forthcoming in a week.

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Oleg Tumarkin, JD, MBA, CSSBB is an Adjunct Professor of Business at Lakeland College and Concordia University of Wisconsin. His firm, FutureWorks, in partnership with Bucket Brigade and AKS-Labs provides business coaching and Balanced Scorecard implementations.  His life’s passion is the development of a universal business measurement and management system that would cause management in to the realm of a repeatable, replicable, yet humane and flexible science.

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Find below the BSC Designer implementation strategies available for our customers. BSC Designer is available in 3 editions – Standard, PRO and Online. Check the difference between editions.

Please note: if you are managing distributed team consider using BSC Designer Online. It’s a good solution when you want your remote employees or partners to do the data input job for your Balanced Scorecard.

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We have released a free bonus to our BSC Training. In “Balanced Scorecard Implementation Plan” you will learn:

• How to design Balanced Scorecard implementation plan;
• What people should be involved into the process of implementation;
• What are key steps about implementation of Balanced Scorecard;

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Intro

The basis of Kaplan and Norton concept seems to be easy: strategic plan is realized by tactical and operational results’ management according to the key activities of the company. This idea (of how easy the concept is) might cause wrong actions while implementation. Sometimes manager consider it enough just reading and understanding the summary of the concept or its interpretation by one or another scientist to start the process of creating a scorecard for the company. It often happens that the project, created this way does not result into something really balanced or systematic.

Common mistakes from practice of the BSC implementation and usage

The most common mistakes of the BSC concept’s wrong interpretation are the following:

• The map of financial measures is presented instead of the strategic map. It could seem innovative to present the existing financial, accounting and monitoring indicators as form of scorecard for all the company. But in this case, the system’s basic purpose appears to be forgotten. There is no actual revision of company’s strategy; such interpretation of the system will not turn the company’s direction into balanced concept. So the company is not going to grow into something better, then it had been before;
• Managers often use the mechanistic method of approach to the creation of strategy map. For example, those activities, which are associated with finance or economics, become a part of Financial Perspective; the activities, which contain the words like “market”, “customer”, “sells” are going directly to Customer Perspective. Meanwhile, the right thing is that, for example, financial indicators might be a part of any category. The important thing is their share, which does not exceed 30 – 40 percent in a “right” scorecard. It needs to be known, what every Perspective in the BSC concept really means and directed for. For example, Customer Perspective needs to show the markets response to the company’s actions when those actions are needed to be described by the Internal Process Perspective;
• Managers make an attempt to use the BSC system as an overall controlling tool. Trying to perform total control on every operation activity of every employee, managers not just wasting their time, but also lose the benefits of the Balanced Scorecard concept usage. It needs to be known, that BSC is mostly a strategic management tool. If it needs to establish absolute connection of strategy with a complete functional stream of the company, the only strategy has to become a setting system for all the stream of processes. Operational activity needs to be directed to achieve the strategic goal and this is the only “correct” way to link functional stream with BSC. Certainly, the monitoring process should be aimed to learn if the operational activity is directed to strategic goals but not to control every action of employees.

Premises for elements of the BSC

It needs for managers to come to the main points of BSC map to create a really working system. The standard set of the four Perspectives (read more in the article “What is Balanced Scorecard concept: the four perspectives”) offered by authors of idea not as an all – fit solution, but is a particular case. As for a general case, the main perspective in the map of Balanced Scorecard is some kind of Strategic Result. For-profit organization needs financial result as its goal, and this is not something illogical or improper. But sure it is not always invariable. There are social responsibilities of a business, ecological responsibilities and many other things that could present the sense of morality. But it needs to be remembered, that the most important result, business is directing to, is money as a well-founded goal of the entire business concept.

But how the company ever could obtain the result, if it is exceeding its potential of smooth extensive growth? It needs to be mentioned, the company is an open system and it is able to use its environment’s resources. The environment will agree to share its piece with the company only if the company will manage to satisfy the External Resources (e.g. market and customers – Customer Perspective in the BSC theory) – the key players of environment, which are ready to exchange their resources for the company’s goods or services.

The important condition for the company to satisfy the market is a well functioning of its own activities and processes (Internal Process Perspective in the BSC theory). It is needed for the good or service, created by the company, to be well enough to please the fastidious market. To optimize the internal process, the company needs to set up well functioning of the following chain of subsystems referring to the staff: education, development of skills, planning, motivation and others. Paying attention to these HR activities, the company is going to increase the efficiency of the internal resources usage.

A well created and implemented Scorecard, according to this logic, is able to provide strategy realization. Using the management of staff’s mental models, the company is directing its internal process to satisfy the needs of the external players, which is sharing its resources. And finely, thanks to this circle, the company is possible to implement a plan of gaining the Result (money).

A common mistake, BSC implementers often commit is an aspiration to take another’s best experience. Even if the company from the same industry will share its strategic map, it will not fit the company which imported the map in every aspect. End it is not always about the uniqueness of company’s activities. Strategy map needs to be a quintessence of the entire company’s advantage over competitors. That is why if the company still wants to import someone other’s map, it would be better to use it as a fundament, adding to it the unique features and reconstructing it to fit the company’s both internal and external processes.

Several conditions of the BSC system proper functioning

There are tree conditions to be defined:

1. The Balanced Scorecard is an internal system’s tool. It is no need to cheat or trick when you are dealing with yourself. Monitoring function, the BSC provides is aimed only to improve the performance, not to show something to someone. Monitoring is needed to manage, not to show. If this rule is not observed, the BSC turns to huge inconvenient system that only bothers every employee but not helps in any aspect. Since the BSC and the strategic map is a tool of strategic management by operational and tactical control, tricking it means only tricking yourself.

2. One of the features of the BSC is “focusing”. The aspiration of management for extracting a synergy from cumulative influence of set of factors often leads to system contradictions. Even a well constructed system could turn to be mistaken and useless this way. It needs to focus the attention and resources on several main indicators when all other ones consider additional, having lower priority. It needs to analyze the set of key indicators concerning both to their influence on performance and the possibility to cause contradictions within the entire system of the BSC.

3. And the last one thing to be noticed in this article is an advice not to think “too much”. Do not try to build the most sophisticated BSC system for your company, as you are able to. There is no need to notice every single activity in the map; it needs indicators of the KEY activities linked with each other by well organized logical structure.

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Test results of Balanced Scorecard implementation

Title: Testing Balanced Scorecard Results

Summary: This part of the Balanced Scorecard Toolkit is a guide on how to measure and evaluate results of Balanced Scorecard design and implementation.

• Buy full version as a part of  Balanced Scorecard Toolkit

Slides number: 28. Formats: PPT (MS PowerPoint), Adobe PDF

• Testing the results of Balanced Scorecard Implementation. Introduction.
• Steps included in the Phase of Testing the Results of BSC Implementation
• Preparations prior to initiating the testing phase. Determining the results of parameters of Balanced Scorecard. Updating the core elements of Balanced Scorecard.
• FAQ and Case Study

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Sample slides

Slide 8. Structuring hypotheses for testing

Slide 22. Why update balanced scorecard? Reasons scheme.

Presentation Content

1. Testing Balanced Scorecard Results
2. Testing the results of Balanced Scorecard Implementation. Introduction.
3. Steps included in the Phase of Testing the Results of BSC Implementation
4. Preparations prior to initiating the testing phase. Introduction.
5. Objectives of pre-testing phase
6. Using relationships from the strategy map
7. Balanced Scorecard Testing Benchmarks
8. Structuring hypotheses for testing
9. What have an influence on performance measures
10. Pre-testing phase checklist
11. Determining the actual values for parameters of BSC. Introduction.
12. Objectives of Balanced Scorecard parameters checking
13. Checking Balanced Scorecard values
14. Collaborative parameters overview
15. Analyzing indicators and categories
16. Balanced Scorecard analysis checklist
17. Updating the Core Elements of Balanced Scorecard – Objectives, Measures and Targets. Introduction.
18. Objectives for core elements updating
19. Objectives for Balanced Scorecard updating
20. Modifying key elements of Balanced Scorecard
21. Factors of Balanced Scorecard Update
22. Why update balanced scorecard? Reasons scheme
23. Getting feedback for Balanced Scorecard update
24. Scorecard update checklist
25. Testing Balanced Scorecard. FAQs.
26. Determining results of Balanced Scorecard. FAQs.
27. Case Study. Testing the results of parameters of BSC.
28. Case Study. Checking Scorecard Values.

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What is BSC implementation

Basically implementation of BSC concept means lots of changes and sometimes even up to full reconstruction of strategy executing process. In the following article we will try to figure out the basic steps of Balanced Scorecard concept implementation. Features of both theoretical and practical issues referring to implementation will be noticed as well.

First of all it needs to be noticed that BSC concept usage does not mean the process of building strategy but means the process of its realization. Certainly, realization of strategy process stands for precise logical strategy that should already be created and confirmed.

The second important thing is that Balanced Scorecard is not just measurement system but is an overall business management concept. That is why managers should not even try to systemize somehow both material and non-material measurement indicators. Kaplan and Norton noticed in interviews that a successful BSC usage in business starts with a recognition of that fact that it is not just another “measures and scales” concept but the project related to measurements.

The four steps of implementation

According to R. Kaplan the process of Balanced Scorecard concept implementation stand for the four basic steps:

Step 1. Building a scorecard: translating company’s plans and strategy into operational goals and activities. After the tree of scorecards is ready it should be integrated into management process.

Step 2. Cascading process: linking all the management and specialists’ hierarchy levels between each other (starting with the highest levels (CEO, top management) and finishing with the lowest staff members). It is important that linking should be based on building goals and indicators for every hierarchy level as a part of the whole company’s strategy. Also the step of setting up cascading includes building of strategic communications as well as encouragement for initiative decisions.

Step 3. Planning: defining precise instructions of the ways of how the operational goal might be reached and when it has to happen. This step also contains distribution of resources and responsibilities among staff according to the plan and designing the strategic actions. In traditional management concepts this step was often mixed up with strategy setting which caused misunderstanding even among managers and sure among lower hierarchy level staff. BSC concept accurately separates the process of operational goals planning from the process of strategy building.

Step 4. Feedback and education: an endless process of testing the performance of the previous step and updating the plans according to the practical results. Also it means monitoring the effectiveness of the strategy according to the latest theoretical issues and case studies of practical examples.

Implementation plan

The first launch of BSC in company should be prepared for a long time and needs a lot of resources. It needs a group of specialists of different departments. As for implementation specialists it could be outsourcers, or company might hire a specialist as a constant employee, or top managers might play a role of such specialist if they are sure their knowledge of Balanced Scorecard concept is enough for it. This group should make a sophisticated project with a logical structure. Certainly the plan of implementation should be individual for every company; it should take into consideration all the special features of the business. But we will list some common stages the implementation plan might include:

• Creating the preconditions for system introduction (the level of enterprise);
• Establishing the basic architecture (the level of enterprise);
• Achievement of consent of strategic goals statement among group’s members (pilot level);
• Defining the key performance indicators and the measure units for each of them (pilot level);
• Defining the plan of actions in time (pilot level);
• Assigning responsibilities to monitor the activities (pilot level).

Practical issues analysis – common mistakes of BSC implementation

It had been a long time since Kaplan and Norton released their first article referring to Balanced Scorecard concept. Thousands of companies all over the world had tried to implement the concept and surely not all of them easily succeed. There are several common mistakes knowing which implementers might avoid huge problems. Here is the list of them:

As for implementation process directly:

• One of the common mistake is impose the responsibilities of implementation’s realization on middle managers but not top managers. Certainly middle managers are not able to rebuild the whole company’s activity and usually they are not even responsible for the strategy. Sure it is possible for some person among middle managers to help or even lead the process of implementation but this way he or she needs to get full authority and rights as well as support of top management. Anyway implementation plan needs a group of specialists to make all the decisions as objective as possible. Remember that Balanced Scorecard is not just another business concept but it helps to understand and optimize all the company;
• A delay of time: sometimes a project group tries to create a perfect plan and notice everything. That is why the time when project is preparing might last forever. Remember that there is no ideal and it is impossible to foresee everything. Sometimes a mark of “B” is enough and it should not be “A” by all means and time delays;
• Delay of launching projects because of indicators shortage. Practically the list of key performance indicators (KPIs) is updating while new activity is adding or some existing one is cancelled. We notice one more time – there is no ideal and human is not able to predict everything;
• And others…

As for theory and philosophy:

• Often the monitoring activities much higher priority than communication ones do;
• While BSC concept is starting to work for the company managers sometimes consider themselves to be responsible for every operational task and the ways it is executed so they deprive lover hierarchy level employees the right to choose the way on how to operate with the goal. That is why employees’ improvisation skills and opportunity to be noticed could easily be killed by such total control and the absence of any freedom;
• The project of implementation and BSC working could be considered as an instruction but not as a goal that all the staff should rich together.

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