Taking the Balanced Scorecard on to the next level
So, what are the strengths of the Balanced Scorecard framework and where do we need to yet improve it?
I have already in other articles alluded to a need for more than four dimensions. More than four views or voices to truly have a comprehensive view of business. In fact, later in the article, I propose eight on which I will be writing extensively in the near future. But there is quite a bit more that can be done without drastically departing from the current Balanced Scorecard that you may already have in place.
One weakness that I consistently see in most Balanced Scorecard implementation is the use of non-statistically controlled metrics. Thus, if we have a variable that tends to fluctuate over time due to reasons beyond our control, or because the process has that much of a variance, a given Scorecard may force us to periodically be overjoyed and at other times to panic about the variable being in and out the desired range. Yet, without having statistic controls for our variables we are entirely unable to separate special cause variation from systematic drifts, from variance within the normal range of the given process. While it is a bit more work in planning the variables and in documenting measurements, it is my experience that without it Balanced Scorecard becomes a source of frustration and is eventually abandoned by management, because their raw intuition can produce better results than this aid.
Long range plans. Aside from the variables being not statistically controlled, perhaps the biggest problem that leads to the development of unrealistic scorecards and thus to their eventual abandonment is the problem of setting too precise a goals too far in to the future. Richardo Semler, in his now famous lecture, Management by Omission, states that one of the most radical planning aids that his Semco experienced was when he ordered that the organizational plans would focus on the six month window rather than a year. As he says, before that all the plans always showed that all the good stuff will happen in the second part of the year. This is not to say that you should not keep your eyes on the horizon. It’s good to think long term, strategically. It’s just futile to wrap that thinking in the precise numbers in to seemingly independent constants when in fact those numbers are a result of variation in so many input variables.
Richardo Semler also addresses another bane of wishful unrealistic thinking that plagues the Balanced Scorecard planning and causes many organizations to disregard any kind of planning as an exercise in futility and that is of the unrealistic, and typically round numbered goals. “We always seem to want hundred million something”, he says and asks if we would be “dissatisfied if we got eighty four million”. He wisely suggest that we abandon these kinds of pursuits, by focusing on the pursuits that are more driven by our actual market conditions, opportunities and strength of our team.
If you have already mastered these basics it might be a good time for you to start looking at my more advanced Balanced Scorecard. To make it easier to remember I named each all by starting with a letter M. These dimensions are: Management, the foundation of business and deserving of individual attention apart from the rest of people management, since if we are unable to manage ourselves effectively, how can we manage the business. Manpower, the people who make up the organization. Means, the business tools, resources, facilities, in accounting terms fixed assets of the business. Method, the process of coordinating Means and Manpower to serve the next M- Market. Market, is the customer and the judge of the firms performance, it is also the product that was developed and delivered with the right Method to support the Customer desires. Money is our sixth M, it is the traditional accounting/financial focus of the business, managing the cash flows, monitoring the financial accountability. While unfortunately the traditional Balanced Scorecard stops there, I propose we keep going to things that are more important than money and to insure which we actually do earn the money. Mitigation of Risk is one such area, since no money in the world will do you any good if you are terminally ill, dead or in jail, if you blow up our lowly planet or kill all that is dear to you. Mitigation of Risk is an area that most resembles voodoo witch doctor approaches in that it is a new discipline that has not had a chance to fully form, but the fact that is so amorphous and imprecise nevertheless does not mean that we can disregard it in the decision making. But we must not stop there, unless that is your only goal is to survive. The final broad category is all inclusive, it is the Mission of the organization, it focuses on the very purpose of the organizational existence and begs the question: Why does we exist? It is only few and very blessed organizations that are in the position to wrestle with this tough question because it takes a degree of success and competence in the other seven focus areas before the managers can face the ultimate question of human existence and in a sense become philosophers, lovers of wisdom. But as Plato argues in his Republic no country is as blessed as one that is governed by the philosopher king. And I might add that the same holds for an organization that has reached the levels of success that allow such a reign.
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Oleg Tumarkin is an Adjunct Professor of Business at Lakeland College and Concordia University of Wisconsin. His firm, FutureWorks, in partnership with 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.
