Kaplan & Norton’s Balanced Scorecard has become a standard bearer for modern performance management in business today. In fact it has become big business all of its own, complete with reams of books, videos, training programmes, awards and the Balanced Scorecard Collaborative, a marketing portal for all things Balanced Scorecard.
The Balanced Scorecard was developed in the early-90s as an antidote to the the excessive focus on financial business measures. Recognising that financial measures are a reflection of decisions made in the past, Kaplan & Norton added customer and business process measures to reflect the drivers of today’s business and learning & growth measures to reflect the drivers of tomorrow’s business. As originally intended, a systemic review of the business’ value drivers would be carried out before developing the balanced scorecard of measures and cascading them down through the business. Kaplan & Norton have since expanded the Balanced Scorecard into Strategy Maps which recognises that it is understanding the relationships between different value drivers that is the heart of the Balanced Scorecard.
It all sounds grand in theory, but it is difficult and complex to put into practice. One of the most common pitfalls is the strong urge for managers to simplify the measures and to concentrate on just those that fall within their influence, rather than looking at the broader range of measures and their inter-relationships as they should. A quick search on Google for Strategy Map pictures shows exactly what I mean; simplistic, unbalanced diagrams that rarely represent the underlying business system whose performance they are supposed to measure, monitor and manage.
In the Balanced Scorecard, performance management is all too easily about managing the individual measures over the short-term.
Amongst all of the big name businesses that use the Balanced Scorecard, there are a few notable exceptions who don’t. One of those is Toyota. Toyota uses a much more systemic understanding of its value drivers than the majority of businesses. It also takes a much more systematic approach to business success, that looks at value drivers and their inter-relationships as a dynamic business system whose behaviour emerges over the longer-term. And by longer-term I mean anything from 5-10 years. Armed with this understanding of how its business works, Toyota seeks to manage the inter-relationships between the measures, in the knowledge that it is the inter-relationships that drive the business system and that changes in the individual measures are the result. Tom Johnson (who was a collaborator with Kaplan before they very publicly fell out over the future direction of performance measurement) describes this approach in detail in his book Profit Beyond Measure.
In Toyota, performance management is about managing the inter-relationships between the individual measures over the longer-term. It is about the business system. Or as Johnson would describe it, it is about managing work and people.
As Toyota goes from strength to strength – it has already overtaken Chrysler and Ford in sales volume and is about to overtake General Motors – it is worthwhile looking at why it is so successful. Its more balanced view of systematic performance management over the longer-term is certainly a big part of this success.
What do you think? Has the Balanced Scorecard become a barrier to business progress? Or is Toyota the exception that proves the rule?
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(Disclosure: I am a consultant to Toyota in Europe and an Interim CRM Manager at Toyota Finacial Services.)