The Unbalanced Balanced Scorecard

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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?

Post a comment and get the conversation going.

Graham Hill

(Disclosure: I am a consultant to Toyota in Europe and an Interim CRM Manager at Toyota Finacial Services.)

7 COMMENTS

  1. Hi,

    I am an MBA student, and one of the classes I am currently taking is Productions Mgmt. We are completely focusing on the “Balanced Score Card, Strategy-focused Organization, The Service Profit Chain, and Strategy Maps.” One of our projects is to find a company that uses the balanced score card and prepare a presentation on it. Knowing how successful Toyota is and has become, I figured for sure they would have one. I am really thinking about comparing Toyota (who does not have one) and is successful, to a company like GM (who does have one) and is not doing so well. Can you give me additional information or comments on this choice?

    Thanks, Heidi

  2. Heidi

    Thanks you for your comment and question. They are much appreciated.

    The difference between Toyota with its long-term thinking and say, GM or Ford with its shorter-term thinking, (disclosure: I was also a consultant to Ford of Europe for a number of years), is a philosophical one based as much on their business origins as their business practices. That Toyota hugely out-performs GM or Ford (or the rest of the automotive industry) is not up for discussion. But why they measure, monitor and manage performance differently is much more difficult to understand. That makes Toyota vs GM or Ford a more difficult subject for MBA study. And has been recently reported in the press, Toyota may face protectionist political problems in the US when it likely replaces GM as the No1 automaker by volume this year.

    Instead of Toyota vs Ford, I would recommend that you look at two smaller companies that you can more easily get to grips with and that are less politically charged. The Balanced Scorecard Collaborative website will give you a list of companies who are using the BSC. Johnson’s book and various Lean Blogs will give you a list of complementary companies that use the Toyota Way that you can pair with a BSC company to complete the picture.

    Let me know directly if you can’t find a good pairing, or if you need any more assistance.

    Graham Hill
    graham(dot)hill(at)web(dot)de

  3. Hi,

    Thanks for this informative article.
    I am an MBA student and currently working on a project that requires me to find out KPIs in scorecards of certain companies such as Caterpillar, Marathon Oil and Boeing . Pardon my incorrect usage of terms if any; I am a newbie in this area. Going by the sensitivity of this information I understand that this info would probably not be floating around and difficult to obtain on the internet. I would greatly appreciate if you could suggest ideas regarding how to go about finding this information.

    Thanks,
    Bharat

  4. Bharat

    Thanks for your comment. It is much appreciated.

    You hit upon a real issue. Kaplan & Norton once said that although leaving most company documents on a train wouldn’t give competitors a real advantage, leaving the Balanced Scorecard would. After all, what gets measured gets managed and what gets managed gets done.

    But you would be amazed at what you can find out about a company’s KPIs by searching though Google articles and by looking at academic articles (Google Scholar followed by you B-School library). If that fails, you should get a B-School alumni at the company in question or one of your B-School Profs to arrange an introduction.

    Let us know how you get on.

    Graham Hill

  5. Fantastic article. Here I got more useful information about the Balanced Scorecard. As far as i know, Balanced Scorecard has not become a barrier to business progress. It may helps to focus managers’ attention on strategic issues and the management of the implementation of strategy.

    Balanced Scorecards have been implemented by government agencies, military units, business units and corporations as a whole, non-profit organizations, and schools. So it has benefits by implementing that.

    http://www.GlobalPerformanceForum.com
    http://www.MissionDrivenPerformance.com
    http://www.gsmiweb.com

  6. Great articles

    Hi We are as engineering company who is trying to implement Balance Scorecard , of course including creation of Stratey map selecting right KPI and stuff for our performance manegement department. I am kind of handling this part studying about BSC. So I would like to ask you few question about how to select Key Performance indicators based on our srategy map? also how do I actual choose the relationship between our objectives on the map linking to each other?.

    also what is best functionable and easy understandable BSC software in the energy and engineering industry ?

    is it ok to start with four BSC traditional perspectives for begining?

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