Many organizations have implemented balanced scorecards, for many it has been a huge success, but for some there has been little impact, here are a few thoughts on what can go wrong if the scorecard isn’t implemented properly

The strategy is insufficiently defined

The scorecard is all about turning strategy into value, so if the strategy doesn’t properly reflect where the organization wants to go then the scorecard cant help guide the journey. If a sound process is used to develop the scorecard it should become obvious very quickly if the strategy is lacking. On a number of occasions I’ve known it to be necessary to stop work on the scorecard and take the management team back to reconsider the strategy and come up with something that is much better defined and reflects the true direction the business must head.

The scorecard doesn’t align with the strategic objectives

Even when the strategy is right the scorecard might not properly align to it. The management team must understand what the business drivers are that will underpin the strategy, what levers can be pulled to move these drivers in the right direction, and measure the metrics that will indicate whether those business drivers are being properly managed.

The metrics underpinning the scorecard do not follow “good measurement” practice:

These metrics must assist management in a practical way to deliver the outcomes required by the strategy and therefore must:

• Measure those things that have greatest impact on the achievement of strategic outcomes
• Focus on the things that the management team can directly change, or has greatest influence over so that the information reported can allow proactive management intervention.
• Give a balanced view of performance right across the four quadrants of the scorecard
• Provide leading as well as lagging indicators of performance, so that early warning is given and corrective action can be taken on a timely basis.
• Ensure metrics are properly defined, so it is clear what is being measured and how it is calculated.
• Have appropriate targets and tolerances set against them that link to a RAG traffic lighting system
• Be capable of cascading through the organization so that managers are presented with relevant information relating to their particular area of responsibility;
• Propose content that is practical to implement, and that can be populated from data that is available for collection.

Targets & tolerances not well set

Current performance must be properly understood and a baseline set, then realistic targets can be established. The importance of getting the baseline right is often underestimated. Put simply, the baseline represents how the organization is currently performing. In financial areas it should be quite straightforward, as the accounting systems should already record current performance, in other areas it might be more difficult, and problems usually stem from inaccurate information. Suppose for a moment customer complaints is a key metric. Do you really know what the current complaint level is? Chances are that once something arrives on a scorecard then more attention is paid to it and measurement becomes more accurate, as this happens we must be prepared to adjust targets so they remain meaningful.

In short targets need to be challenging but realistic, and tolerances need to be set around them to ensure that proper escalation takes place. Think carefully about what amber and red should mean on a scorecard, and what actions these should trigger. One possible rule is Green = on / near target, no action needed. Amber = off target, but can be remedied without escalation to board level. Red = Off target, requires board level attention, either because this is the level at which an intervention can take place, or if this is not possible to indicate to the board as early as possible that a strategic objective wont be met and therefore strategy needs reconsideration.

No link to the rewards system

If the scorecard isn’t cascaded properly into individual managers objectives then the wrong management behaviors are encouraged. Scorecards might exist at corporate level, and be cascaded down into divisions, but to be truly successful the cascade must go lower into team objectives and individual objectives. Frequently, at the lowest level teams will have clear objectives, but still not have these properly aligned to the top level strategy. Sometimes this is because at the lowest level focus is entirely operational, and while this is vital, sight of the strategic goal cannot be lost.

Measurement not management

The scorecard is a management system, not a measurement system. Metrics and traffic lights should direct management action, and allow management by exception. If corrective action is not taken then why are we bothering with the scorecard at all? The management processes put in place around the scorecard, and getting the culture of the organization right is just as important as working out what to measure and building the reporting systems and tools. Scorecard implementation must be handled as a change project with proper attention being placed on people and process.

CEO & board buy in

Above all the scorecard needs to be an integral part of managing the business. One acid test is to what extent a board meeting could be run by using the scorecard as an agenda? The main purpose of the board should be to create and deliver the strategy. The scorecard should show how strategy is turned into value. Traffic lighting on the scorecard should flag up the key areas of concern for the board and allow management by exception. Could you run a board meeting with an agenda that simply comprised the red items on your scorecard?