Friday, December 14, 2012

Is the Balanced Scorecard “strategic approach” revolutionary or a fallacy?

Organizations across the world have embraced the “Balanced Scorecard” strategic planning system as a revolution in management; designed to align the day-to-day activities of an organization with its vision, to make internal and external communications more efficient, and to provide a framework for measuring performance versus strategic goals. Many incredibly respected corporations have implemented the Balanced Scorecard approach, but that does not mean it is right for your company. Before committing, it is imperative that you weigh the pros and cons.

Balanced Scorecard is used in a wide range of organizations, from non-profits to governmental agencies to titans of business and industry. According to international strategy execution/performance management expert Jeroen De Flander, 54 percent of all companies in France use the system. Created by Drs. Robert Kaplan and David Norton in the early 1990s, it has been hailed as a system that, according to De Flander, “transforms an organization’s strategic plan from an attractive but passive document into the ‘marching orders’ for the organization on a daily basis.” It not only provides tangible measures of performance, it also helps executives determine what measurements to take, thereby helping decision makers execute strategy.

Not a cure-all
The Balanced Scorecard approach is one that has earned a great deal of respect, and is to be applauded. But, as was mentioned in a previous article on this site, it is not a magic pill for strategic management. Balanced Scorecards, as was noted before, are notoriously convoluted in terms of cascading corporate strategy from the executive level down to where “the rubber meets the road,” so to speak. The approach claims to deal with strategy, but is actually based on transactional data.

Those who embrace the Balanced Scorecard method are baffled by its lack of meaningful cascading of strategy. For example, take a construction company that has the goal of injury reduction on its corporate scorecard. If that company uses the Balanced Scorecard approach, then every department has injury reduction as a goal. That even goes for the human resources department, where the biggest injury risk might be a paper cut. And speaking of HR, if the Balanced Scorecard goal is overall cost reduction, that becomes counterintuitive because in order to meet the goal, HR costs will likely have to increase.

It’s not logical
Balanced Scorecard can often paint with such a broad brush so many of a company’s managers and employees will scoff at it, because they are being asked to measure objectives that have no bearing on them. This approach often fails to focus on how certain departments contribute to the overall direction of the business. When this occurs, logic is compromised and commitment to the approach wanes. Balanced Scorecard does not encourage open analysis and exploration of a company’s strategy, and that may be its biggest fault.

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