How To Use The Balanced Scorecard (& Know If Yours Is Failing)

The Balanced Scorecard (BSC) has been one of the world’s top management frameworks since its introduction in the early 1990s. It employs a visual, concise format to help organizations execute their strategies. The BSC doesn’t create a strategy, but instead “holds” and organizes it.

Every year since 2009, 2GC Active Management has conducted user surveys to collect data on Balanced Scorecard usage patterns. This continuing international study seeks to deepen our understanding of how Balanced Scorecard is used, and provide insights into the practical issues faced by Balanced Scorecard designers and users.

Along with a huge library of downloadable materials on Balanced Scorecard and strategy implementation and performance management in general, the results of previous surveys are freely available on their website.

Highlights of the 2016 survey include the following:

  • Executive or senior management teams represented over two-thirds of all Balanced Scorecard users.
  • The Balanced Scorecard’s primary reported role was strategy implementation. A smaller number of respondents used it for operational management, and about a quarter used it only for reporting.
  • Forty-five percent reported that they do not use any software tools to create their Balanced Scorecard reports. About 33% used office software tools like Excel. (The findings in this survey imply that many organizations would gain economically from introducing some kind of reporting automation.)

But these statistics don’t tell the whole story. While it may be interesting to see how and why other organization’s put the Balanced Scorecard to use, you need to know the steps to take in order to execute well on your BSC. If that question has lead you to this article, you’re in the right place.

  1. First, we’ll walk through how to get a handle on your data.
  2. Next, we’ll look at a system that allows you to evaluate your measures automatically—and why that’s critical.
  3. Finally, we’ll lay out 10 signs that your BSC strategy isn’t working as it should (and how you can fix it!).

Let’s get started.

Step #1: Get a grip on your scorecard data.

Some companies fail to clearly define what matters in their organization from a strategic perspective, so they attempt to measure everything. This, however, creates hours and hours of wasted time and effort—and if you make this mistake at the beginning of your strategic process, it could come back to haunt you.

So if your organization is facing this type of data overload, the first step is to clearly define the strategy and put it on one piece of paper. From there, you can define a set of measures that tell those involved how they’re doing against this strategy.

Make this one-page, no-nonsense Excel Balanced Scorecard your own.

Once this foundation has been put in place, however, you can start working on the process of managing strategy and placing the data in context. Context is what converts the sea of data into actionable knowledge that can be used to drive decision-making.

Placing this data into context is not difficult; here’s the process:

  • Limit the number of Balanced Scorecard measures to be discussed to a manageable few. We usually recommend no more than 10-15 strategy measures. More than this and you risk losing focus on the key drivers of your strategy.
  • Prepare commentary by measure owners well in advance of each meeting. For example, if the average number of page views is going down, is that a good thing or a bad thing? Why? What’s being done about it?
  • Send out a document with the data and the commentary 1-2 days before each meeting and insist that everyone read and understand it before coming to the meeting. Ask clarifying questions or question the data beforehand.
  • Use the strategy review meeting to make decisions. Document these decisions and hold people accountable to the decisions that were made. Track action items and project milestones.

Organizations that follow these simple steps have a much better chance of focusing on key drivers and placing data in context to drive decision-making. So an important takeaway is to limit your Balanced Scorecard measures to 10 or 15 and track everything that helps you hit those numbers, and ignore the rest.

Step #2: Tackle Balanced Scorecard measure and goal issues through automatic evaluation.

RAG (red, amber, green) status indicators are often used in scorecards to help an organization understand progress toward its measures and goals.

  • Red means the measure or goal needs additional help or some outside resources allocated toward it to get things back on track.
  • Amber (or yellow) means the measure or goal is close to being on track or might self-correct.
  • Green means everything is on track.

But where do RAG status indicators come from? Determining RAG statuses is a more involved process than many imagine, and the mechanical process of setting up those evaluations is very important.

Nine out of 10 organizations fail to execute strategy. Avoid failure with this toolkit.

Before we explain how you can automate the process for determining these statuses—and why it’s so important—let’s walk through a few scenarios that could happen if you update your statuses manually instead.

Balanced Scorecard Measure Issues

You might lower your target to meet your performance.

When you make manual updates to your statuses, you have two options for meeting your target: either improve your performance, or lower your target. The latter is almost never a good option, unless the target was set incorrectly the first time around. Automating this process eliminates the guesswork.

You might hide your shortcomings.

Even if your data is accurate, manual status updating can allow you to hide your shortcomings by assigning a color that isn’t accurate. It’s important to note that this may be erroneous, but it could be purposeful. Regardless, assigning incorrect color statuses is a good way to surprise yourself (and your organization) at year end when your measures have not been met. Automatic evaluations will help you eliminate the possibility of this issue.

Balanced Scorecard Goal Issues

You might use your gut instinct to set up your evaluations—even if it isn’t accurate.

You—or someone in your organization—might be guilty of thinking it’s impossible to automatically evaluate goals. This leads to setting up evaluations that make you feel more comfortable, even if those evaluations don’t reflect an accurate version of the truth. Thinking through the rules for goal evaluations as a team can help you have a more honest and thoughtful conversation around your organizational goals.

You might not tie your measures to your goals.

In order to properly evaluate your goals, you’ll need to assign several Balanced Scorecard measures to them—and then weigh those measures by importance. This is a vital step in the process and gives you a high degree of confidence in your evaluations—particularly when they aren’t subjectively evaluated. Failing to do so can be an organization-wide issue.

After reading through these common mistakes and errors, you’re likely wondering how you can spend more time managing and analyzing results and less time trying to determine what those results are. That’s a great question.

Enter the Measure & Goal Evaluation Toolkit. This all-in-one, step-by-step guide walks you through the process of creating robust, automated evaluations for your Balanced Scorecard measures and goals. Doing some hard thinking upfront about this process will help ensure that you build your scorecard right the first time, instead of learning from the problems and mistakes that will come from winging it. By the time you’ve completed the templates included, you’ll feel confident that your statuses are based on both logic and good leadership alignment.

Step #3: Watch for any of these 10 signs that your Balanced Scorecard strategy is failing.

Even if you’re just getting starting with your BSC, it’s critical to know the signs that your strategy could be on a path toward failure. Keep the following 10 signs in mind, so you can put a stop to any issues before they become more problematic!

1. Your employees don’t recognize (or use) your scorecard.

Your Balanced Scorecard should be a living document that links all employee actions to your organizational strategy. If employees don’t recognize its existence (or its helpfulness in the organization), that is a major issue—and you should address it immediately.

2. Your leadership doesn’t think the BSC accurately reflects your Balanced Scorecard strategy.

If your leadership team admits that the scorecard represents the company as it was five years ago but is no longer representative, then it’s time for a refresh. You want your current priorities to be on the scorecard so it is reflective of your updated strategy.

3. You don’t meet regularly about your scorecard.

Having a Balanced Scorecard is about placing strategy at the center of the management process. If your scorecard is not being used as an organizing framework for key meetings at the executive level, then it is clearly not at the center of your process. This is an indication that you are managing around your scorecard rather than with your scorecard—and it isn’t doing you any favors.

4. You’re using compensation without proper controls.

Recently, news broke that thousands of Wells Fargo employees created millions of unauthorized bank and credit card accounts without customer consent or knowledge. In fact, 5,300 employees were fired in the wake of this scandal. According to Richard Cordray, the director of the Consumer Financial Protection Bureau, the employees created these fake accounts “to hit sales targets and receive bonuses.”

This goes to show that linking compensation to anything can be fraught with problems if you don’t have the right controls in place. If you’re linking compensation to measures that are not part of your Balanced Scorecard strategy, this is a sure sign your scorecard is failing. And even if the measures are part of your strategy, you need to make sure you are driving the right behavior in your organization. Be vigilant about this one; the consequences are costly to your bottom line and your reputation.

5. There is no balance in your scorecard.

The balance in your Balanced Scorecard comes from having measures across all four of your perspectives (not just your financial perspective), tracking short- and long-term strategic priorities, and having leading and lagging indicators. If your scorecard is all financial metrics, it’s time to make a change.

6. Ownership and accountability are lacking.

If you have one person running your scorecard program, creating all of the reports, and showing progress to the leadership team once a quarter—beware. This is not a good sign. Having a lead Balanced Scorecard coordinator is fine, but various employees throughout the organization should be involved with and accountable for scorecard results.

7. Your departments aren’t aligned.

If you have an enterprise scorecard program, you should be able to see how your strategy links from departments, to the division, to the enterprise. Without these linkages, you are only executing on part of your strategy—not your entire strategy.

8. You need to create a strategy map.

It’s not a requirement to have a Balanced Scorecard strategy map—but we highly recommend it. A strategy map is a great visual strategy communicator, and it may help with buy-in across the organization.

9. Your BSC isn’t integrated with other reporting tools.

Your scorecard should be clearly linked with your budgeting system and your strategic project management process. If these activities are running independently, consider it a warning sign of a problem-riddled BSC.

10. Your departments and teams are experiencing reporting angst.

You should be spending most of your time managing your strategy—not managing your reporting process. If you find that staff and leadership are simply going through the motions to fill out reports (and that you now have a reporting office and not a strategy office), this is dangerous. You should consider the advantages that reporting software could provide by making your reporting easy and consistent, and put the strategy discussion back at the center of your program.

Most of the signs listed above indicate that your BSC process is simply too complicated. If you’re experiencing one (or all 10!) of these issues, get back to the basics. Identify what works, focus on your Balanced Scorecard strategy, and dig into the parts that are broken. If you’re feeling completely disorganized in this process, download our comprehensive management reporting guide. It will highlight the details of our strategic planning process and help you implement the tips at your own organization.

What’s the next step?

At this point, you know the benefits and the pitfalls—and if you don’t already have a scorecard created, we have a simple way for you to begin. This free, 41-page strategy execution toolkit contains everything you need to get off on the right foot. From writing a purpose statement, to building a change agenda, to creating a strategy map, this template will be your go-to throughout the process. Download it today!

Download: The Strategy Execution Toolkit