Avoid these mistakes when using BSC System
Any business automation tool requires proper implementation and what is more important – maintenance. Balanced scorecard system is not an exception here. There are a lot of reasons why balanced scorecard system will be a waste of time and money. Formally, when not used properly, balanced scorecard will still work. But guess what happens if you use the wrong data, take the wrong actions and have the wrong attitude to the system itself? The answer is quite obvious – you won’t reach strategic goals.
Thus, it is imperative to be aware of reasons or symptoms of balanced scorecard performance evaluation process breakdown. It needs saying, that most critics of BSC never mention mistakes they have made when implementing and maintaining balanced scorecard. So, don’t make such mistakes if you want to reach strategic goals and get balanced scorecard help you in this.
Breakdown symptoms can be sorted out in several groups, each containing interrelated and interconnected reasons of performance evaluation failure. Let’s review each group and give commentaries as well as look for solutions to problems.
Avoid these mistakes when using BSC system
Group 1. Wrong goals, wrong measures, wrong KPIs
This group summarizes most common mistakes in selection of goals and KPIs. Evidently, all elements in this chain depend on each other. As a result, wrong selection of goals leads to wrong choice of measures and KPIs to be evaluated. This is like driving a car to wrong direction, hoping to reach destination soon. The stage of making a choice of goals and measures is extremely important as you need to know what to measure, how to measure and what results you want to achieve. Keep your goals realistic. It is impossible to wipe out all competitors if your market share does not exceed 1%. No matter what KPIs you choose and what actions you take this goal will be unachievable. In selecting KPIs you need to have a different view on your company as if taking a detached view on it. Avoid measuring one indicator in different ways. Also, keep in mind that measures should always ally with goals.
Wrong goals will result in selection of inappropriate KPIs and actions to be taken
There is also a problem of choosing too many KPIs. You need to focus on most important things otherwise you’ll be unable to process so much information. Moreover there is no need in it. There is also a common mistake when managers focus only on financial measures at the same time ignoring non-financial ones. Net revenue is a good indicator but not the only one.
Group 2. Data collection and processing
It is imperative that data is timely collected and processed/analyzed in a proper way. Untimely data collection is rather dangerous because of changes in environment and company internal processes. Thus, the traditional manual way of data collection is very time consuming and, as a result, ineffective. Make sure you use automated tools of data collection. It also need saying that collected information must be complete, accurate and consistent otherwise indicators will represent wrong values which will lead to wrong countermeasures. Taking into account the above mentioned, it is obvious that timely and accurate collection of information requires investment in data collection and processing.
There is a common misconception that collection of data is enough for perfect functioning of BSC. Nothing of the kind! Information is only then valuable when it is properly analyzed. Thus, personnel should have the time and tools to analyze information. Besides, financial management uses very complex formulas with numerous constants which are not understood for an ordinary office clerk.
Difficulty in getting information out of data systems is another common mistake. So, employees and top management must be able to timely and efficiently extract data to make prompt decisions. Moreover, data sources should communicate with each other.
To sum it up, it should be noted that people are key deciding factor in collecting and analyzing since they must be able to get most important data and properly use it.
Group 3. Reporting.
Employees at all levels need to know when and how to report the measures. Untimely reports make prompt decisions impossible which results in impossibility to react on changes inside and outside the company, as well as changes in indicators. Reports should have a clear and comprehensive content which should be easy to read and use in further work.
Group 4. Making conclusions. Human factor.
The last group deals with mistakes that mainly concern employees working for the company where Balanced Scorecard System is being implemented and maintained. Wrong conclusions, fears and misuse of information or use of false information make balanced scorecard just a useless tool and waste of money. It is imperative that every employee at all management and operational levels understands his contribution to implementation and maintenance of balanced scorecard. In other words, every employee should know how he can help the company reach strategic goals. At the same time the company management should encourage its personnel and introduce special bonus programs for completed tasks and reached goals. A properly motivated employee who is aware of own weak points is more likely to do his/her best to perform better and reach specified goals.
Balanced scorecard is designed for internal use only. It is very unwise to cheat when using this tool. Wrong indicators or unfinished tasks reported as completed will never contribute to improvements in the company performance and thus will never approach the company to its strategic goals. If you’re using balanced scorecard and employees provide you with fake figures (as they fear to see poor indicators), you will cheat on yourself. There is nothing worse than illusion of success in the modern business world.
Personnel must not only do their best to contribute to the company success but should also be interested in the use of balanced scorecard. At the same time the company management should have human resources and enough time to implement and maintain balanced scorecard without distracting employees from their primary tasks.
It is very unwise to start using balanced scorecard without being aware of how to start. Moreover, even if you know how to maintain balanced scorecard you must be ready to take countermeasures to changes. In other words you need to appoint people who will take actions in response to changes, for example if certain measures change or drastic market changes occur.
Balanced scorecard is the tool that is used for the long-term perspective. Thus, making decisions based on a 1 month trend is not the best thing to do. Balanced scorecard may help you achieve competitive advantage over years, but not make immediate profits overnight.
Sure, these four groups do not cover all the mistakes and misconceptions about balanced scorecard. But avoiding the above mentioned errors will surely help fully explore potential of Balanced Scorecard.
