Use
Balanced Scorecard was initially proposed as a general purpose performanceHistory
Organizations have used systems consisting of a mix of financial and non-financial measures to track progress for quite some time. One suchCharacteristics
The characteristic feature of the balanced scorecard and its derivatives is the presentation of a mixture of financial and non-financial measures each compared to a 'target' value within a single concise report. The report is not meant to be a replacement for traditional financial or operational reports but a succinct summary that captures the information most relevant to those reading it. It is the method by which this 'most relevant' information is determined (i.e., the design processes used to select the content) that most differentiates the various versions of the tool in circulation. The balanced scorecard indirectly also provides a useful insight into an organisation's strategy – by requiring general strategic statements (e.g. mission, vision) to be precipitated into more specific/tangible forms. The first versions of Kaplan and Norton's interpretation of the balanced scorecard asserted that relevance should derive from theVariants
Since the balanced scorecard was popularized in the early 1990s, a large number of alternatives to the original 'four box' balanced scorecard promoted by Kaplan and Norton in their various articles and books have emerged. Most have very limited application, and are typically proposed either by academics as vehicles for expanding the dialogue beyond the financial bottom line – e.g. Brignall (2002) or consultants as an attempt at differentiation to promote sales of books and / or consultancy (e.g. Neely et al. (2002), Bourne (2002), Niven (2002)). Many of the structural variations proposed are broadly similar, and a research paper published in 2004 attempted to identify a pattern in these alternatives – noting three distinct types of variation. The variations appeared to be part of an evolution of the balanced scorecard concept, and so the paper refers to these distinct types as "generations". Broadly, the original 'measures in four boxes' type design (as initially proposed by Kaplan & Norton) constitutes the 1st generation balanced scorecard design; balanced scorecard designs that include a 'strategy map' or 'strategic linkage model' (e.g. the Performance Prism, later Kaplan & Norton designs the Performance Driver model of Olve, Roy & Wetter (English translation 1999, 1st published in Swedish 1997)) constitute the 2nd Generation of Balanced Scorecard design; and designs that augment the strategy map / strategic linkage model with a separate document describing the long-term outcomes sought from the strategy (the "destination statement" idea) comprise the 3rd generation balanced scorecard design. Variants that feature adaptations of the structure of balanced scorecard to suit better a particular viewpoint or agenda are numerous. Examples of the focus of such adaptations include the triple bottom line, decision support, public sector management, and health care management. The performance management elements of the UN's Results Based Management system have strong design and structural similarities to those used in the 3rd Generation Balanced Scorecard design approach. Balanced scorecard is also linked toDesign
Design of a balanced scorecard is about the identification of a small number of financial and non-financial measures and attaching targets to them, so that when they are reviewed it is possible to determine whether current performance 'meets expectations'. By alerting managers to areas where performance deviates from expectations, they can be encouraged to focus their attention on these areas, and hopefully as a result trigger improved performance within the part of the organization they lead. The original thinking behind a balanced scorecard was for it to be focused on information relating to the implementation of a strategy, and over time there has been a blurring of the boundaries between conventional strategic planning and control activities and those required to design a balanced scorecard. This is illustrated well by the four steps required to design a balanced scorecard included in Kaplan & Norton's writing on the subject in the late 1990s: # Translating the vision into operational goals; # Communicating the vision and link it to individual performance; # Business planning; index setting # Feedback and learning, and adjusting the strategy accordingly. These steps go far beyond the simple task of identifying a small number of financial and non-financial measures, but illustrate the requirement for whatever design process is used to fit within broader thinking about how the resulting balanced scorecard will integrate with the wider business management process. Although it helps focus managers' attention on strategic issues and the management of the implementation of strategy, it is important to remember that the balanced scorecard itself has no role in the formation of strategy. In fact, balanced scorecards can co-exist withFirst generation
The first generation of balanced scorecard designs used a "four perspective" approach to identify what measures to use to track the implementation of strategy. The original four "perspectives" proposed were: * Financial: encourages the identification of a few relevant high-level financial measures. In particular, designers were encouraged to choose measures that helped inform the answer to the question "How do we look to shareholders?" Examples: cash flow, sales growth, operating income, return on equity. * Customer: encourages the identification of measures that answer the question "What is important to our customers and stakeholders?" Examples: percent of sales from new products, on time delivery, share of important customers’ purchases, ranking by important customers. * Internal business processes: encourages the identification of measures that answer the question "What must we excel at?"Examples: cycle time, unit cost, yield, new product introductions. * Learning and growth: encourages the identification of measures that answer the question "How can we continue to improve, create value and innovate?". Examples: time to develop new generation of products, life cycle to product maturity, time to market versus competition. The idea was that managers used these perspective headings to prompt the selection of a small number of measures that informed on that aspect of the organisation's strategic performance. The perspective headings show that Kaplan and Norton were thinking about the needs of non-divisional commercial organisations in their initial design. These categories were not so relevant to public sector or non-profit organisations, or units within complex organizations (which might have high degrees of internal specialization), and much of the early literature on balanced scorecard focused on suggestions of alternative 'perspectives' that might have more relevance to these groups(e.g. Butler et al. (1997), Ahn (2001), Elefalke (2001), Brignall (2002), Irwin (2002), Flamholtz (2003), Radnor et al. (2003)). These suggestions were notably triggered by a recognition that different but equivalent headings would yield alternative sets of measures, and this represents the major design challenge faced with this type of balanced scorecard design: justifying the choice of measures made. "Of all the measures you could have chosen, why did you choose these?" These issues contribute to dis-satisfaction with early Balanced Scorecard designs, since if users are not confident that the measures within the Balanced Scorecard are well chosen, they will have less confidence in the information it provides. Although less common, these early-style balanced scorecards are still designed and used today. In short, first generation balanced scorecards are hard to design in a way that builds confidence that they are well designed. Because of this, many are abandoned soon after completion.Second generation
In the mid-1990s, an improved design method emerged. In the new method, measures are selected based on a set of "strategic objectives" plotted on a "strategic linkage model" or " strategy map". With this modified approach, the strategic objectives are distributed across the four measurement perspectives, so as to "connect the dots" to form a visual presentation of strategy and measures. In this modified version of balanced scorecard design, managers select a few strategic objectives within each of the perspectives, and then define the cause-effect chain among these objectives by drawing links between them to create a "strategic linkage model". A balanced scorecard of strategic performance measures is then derived directly by selecting one or two measures for each strategic objective. This type of approach provides greater contextual justification for the measures chosen, and is generally easier for managers to work through. This style of balanced scorecard has been commonly used since 1996 or so: it is significantly different in approach to the methods originally proposed, and so can be thought of as representing the "2nd generation" of design approach adopted for the balanced scorecard since its introduction.Third generation
In the late 1990s, the design approach had evolved yet again. One problem with the "second generation" design approach described above was that the plotting of causal links amongst twenty or so medium-term strategic goals was still a relatively abstract activity. In practice it ignored the fact that opportunities to intervene to influence strategic goals are (and need to be) anchored in current and real management activity. Secondly, the need to "roll forward" and test the impact of these goals necessitated the reference to an additional design instrument: a statement of what "strategic success", or the "strategic end-state", looked like (which in turn would be related to the organisation's Mission or Vision Statement). This reference point was called a Destination Statement. It was quickly realized that if a Destination Statement was created at the beginning of the design process then it became easier to select the appropriate strategic activity and outcome objectives which if achieved would deliver it. Measures and targets could then be selected to track the achievement of these objectives. Design methods that incorporate a Destination Statement or equivalent (e.g. thePopularity
In 1997, Kurtzman found that 64 percent of the companies questioned were measuring performance from a number of perspectives in a similar way to the balanced scorecard. Balanced scorecards have been implemented by government agencies, military units, business units and corporations as a whole, non-profit organizations, and schools. Balanced scorecard has been widely adopted, and consistently has been found to be the most popular performance management framework in a widely respected annual survey (e.g. see results from 2003 and 2013). Theorists have argued from the earliest days of discussion of Balanced Scorecard usage that much of the benefit of the balanced scorecard comes from the design process itself. Indeed, it is argued that many failures in the early days of balanced scorecard could be attributed to this problem, in that early balanced scorecards were often designed remotely by consultants – it is suggested that because they were not being involved in the design the managers who were intended to use the device did not trust its design (e.g. it measured the wrong things and used inappropriate targets) and so failed to engage with and use the devices.Criticism
Academic criticism of the balanced scorecard can be broken into three distinct (but overlapping) areas of concern. # Lack of rigour: The first kind of criticism focuses on the empirical nature of the framework and the lack of any formal validation of the ideas it is based on in the early articles that introduced the concept. Kaplan and Norton notoriously failed to include any citations of earlier articles in their initial papers on the topic, an absence noted, for example, by Norreklit. Others identified technical flaws in the methods and design of the original balanced scorecard or concerning the lack of validation for the approach – for example Flamholtz observed that no validation was provided for the choice of the "four perspectives" of the 1st Generation design: # Lack of an overall score: The second kind of criticism is that the balanced scorecard does not provide an overall score or a unified view of performance with clear recommendations: it is simply a list of metrics that managers have to interpret before deciding upon appropriate interventions (e.g. Jensen 2001). These critics usually include in their criticism suggestions about how an 'unanswered' question they identify in their commentary could be answered, but typically the unanswered question relate to things outside the scope of balanced scorecard itself (such as developing strategies) (e.g. Brignall) # Not reflective of all stakeholder needs: The third kind of criticism is that the model fails to fully reflect the needs of stakeholders – putting bias on financial stakeholders over others. Early forms of Balanced Scorecard proposed by Kaplan & Norton were orientated towards the needs of commercial organisations in the USA – where a focus on investment return was appropriate. This focus was maintained through subsequent revisions. Even now over 20 years after they were first proposed, the four most common perspectives in Balanced Scorecard designs mirror the four proposed in the original Kaplan & Norton paper. There have been many studies that suggest other perspectives might better reflect the priorities of organisations – particularly but not exclusively relating to the needs of organisations in the public and Non Governmental sectors. For instance, the balanced scorecard does not address important aspects of nonprofit strategy such as social dimensions, human resource elements, political issues and the distinctive nature of competition and collaboration in nonprofit settings. More modern design approaches such as 3rd Generation Balanced Scorecard, the Public Sector Scorecard and the UN's Results Based Management methods explicitly consider the interests of wider stakeholder groups and perhaps address this issue in its entirety. In response to these concerns there have been many studies seeking to provide (retrospective) academic underpinnings for the Balanced Scorecard concept, and to provide case study and validation information for the various design generations. There are relatively few reliable assessments of the effectiveness of the approaches embodied in Balanced Scorecard, but some studies demonstrate a link between the use of balanced scorecards and better decision making or improved financial performance of companies. Broadcast surveys of usage have difficulties in this respect, due to the wide variations in definition of 'what a balanced scorecard is' (making it hard to work out in a survey if you are comparing like with like). Single organization case studies suffer from the 'lack of a control' issue common to any study of organizational change – what the organization would have achieved if the change had not been made isn't known, so it is difficult to attribute changes observed over time to a single intervention (such as introducing a balanced scorecard). However, such studies as have been done have typically found Balanced Scorecard to be useful. Consideration has been given to the effect of organisation size on Balanced Scorecard effectiveness: * For large organisations this work has focused on how to translate aggregate corporate strategies into performance management tools relevant to individual teams / units within the organisation. * InSoftware tools
It is important to recognize that the balanced scorecard by definition is not a complex thing – typically no more than about 20 measures spread across a mix of financial and non-financial topics, and easily reported manually (on paper, or using simple office software). The processes of collecting, reporting, and distributing balanced scorecard information can be labor-intensive and prone to procedural problems (for example, getting all relevant people to return the information required by the required date). The simplest mechanism to use is to delegate these activities to an individual, and many Balanced Scorecards are reported via ad hoc methods based around email, phone calls and office software. In more complex organizations, where there are multiple balanced scorecards to report and/or a need for co-ordination of results between balanced scorecards (for example, if one level of reports relies on information collected and reported at a lower level) the use of individual reporters is problematic. Where these conditions apply, organizations use balanced scorecard reporting software to automate the production and distribution of these reports.See also
* Balanced scorecard SWOT * Digital dashboard, also known as ''business dashboard'', ''enterprise dashboard'' or ''executive dashboard'' *References
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