BSC implementation: how to avoid mistakes
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.
