No, the balanced scorecard (BSC) hasn't gone away but I guess there has been a decline in popularity since Drs Kaplan and Norton pioneered its use in the early 1990s. The BSC is used to manage the delivery of a business strategy. Typically, the business will be viewed from four perspectives - Financial, Internal Business Processes, Learning & Growth and Customer. It should be noted that the Financial perspective is a measure of past performance, which is driven by the management of Internal Processes, the development of human capital by Learning & Growth initiatives and maintaining first-class Customer and other external relationships. So on one side of the balance we have the Financial perspective, which is balanced by the Internal Business Processes, Learning & Growth and Customer perspectives. At the core of the BSC is the company's Vision and Strategy. Introducing the appropriate measurement systems within each perspective allows targets to be set and actions to be taken to drive the business towards the achievement of its vision.
Sounds good doesn't it? Well it did to me when I introduced it into the company that I was heading-up in the early 2000s. For a while it had a motivational effect as it provided a means for most employees to measure their performance against the company's strategic objectives. But did it improve the company's performance? If I'm honest, I don't think so and when I talk to others who have experienced BSCs in different environments, there would appear to be a lot of criticism aimed at this type of strategic management tool. At first sight, the BSC business model appears quite rightly to represent the business as a coherent whole, with four linked perspectives - Financial, Internal, External and Learning & Growth. The coherence of the model, however, appears to get lost as the performance metrics flow into the bowels of the organisation. Managers often pay lip service to the BSC and set their own ideas of performance targets on their staff, generally using metrics that are easily understood and measurable, but don't necessarily relate to the overall business objectives and strategy. This can lead to conflicts in the organisation and the resultant degradation of overall business performance.
The problem would appear to be the cascading nature of management by objectives. So, although the BSC at the top level looks like a systems representation of the business, once the four perspectives are managed as separate entities, systems thinking is replaced by reductionism. It is assumed that the whole (business) can be managed by independently monitoring (through simple metrics) and control of (management by objectives) the parts (the four BSC perspectives and any subsequent reductionism). It's all assumed to be totally linear so, for example, if within the Customer perspective, a salesman wins more orders, then that will in turn trigger the Internal Business Processes to do their job, generating timely deliveries and more profit....
....but it ain't that simple!....
And therein lies the problem. Like many management fads and even long-running ones like the BSC, there is an attempt to force a complex non-linear world into a linear mould. The simple models of an unrealistic static business operation, might look good on a whiteboard or PowerPoint slide, but couldn't be further removed from the real world. That said and despite the scars from my personal BSC experience, I do feel the BSC model does have a use, albeit limited, in strategic management. The use of four perspectives to provide a method to examine any business and then looking at how those perspectives relate to the company vision and relate to each other, at any point in time, is worthwhile. But don't spoil it all by assuming today's model will bear much relationship to next year's model. What's more don't be naive and set up a whole host of simple metrics and mechanistic performance monitoring processes, under the assumption that the BSC will be the engine room to deliver the company's strategy.
Any business is complex and taking a simple view of it doesn't change its complexity. We are part of that complexity and we can observe its characteristics and for sure we can influence its behaviour but we certainly can't control it.
For me, BSC RIP!
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