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What Is The Balanced Scorecard? The Approach, Strategy, & Management Of The BSC
If you’re wondering what the Balanced Scorecard is and how you can implement it, you need to understand BSC approach, strategy, and management.
“What is the Balanced Scorecard?”
We’ve heard this question so many times we’ve lost count. And it’s a great question—in fact, we’ve written a whole lot on the subject.
I could just tell you that the Balanced Scorecard (or “BSC”) is a strategy management framework and send you on your way—but would that really answer your question?
The way I see it, simply looking at a definition—no matter how detailed it is—won’t give you the context you need to really understand how you can integrate a scorecard at your organization and what you need to keep in mind in order for your implementation to be successful.
With that in mind, I’ve created this resource. Below, I’ve detailed out what you need to know about the Balanced Scorecard approach, strategy, and management. These three unique and important elements should shine a light on this complex and interesting topic.
The Balanced Scorecard Approach
There are several questions you have to keep in mind when you’re determining your Balanced Scorecard approach: Do you start from scratch, or do you modify what you have? Do you do it yourself, or do you get help from an outside source? Let’s walk through some of these questions and scenarios.
Starting From Scratch
If you start from scratch with a BSC, you need to figure out your overarching mission and vision (or your Objective, Advantage, & Scope (OAS) statement) and your key goals. Then you need to determine how you’re going to pull that together into a strategy map that tells your organization's story, how you’ll measure it, and how you’ll manage it. When you start from scratch, you’re assuming there’s not a lot of documentation for your organization that will help you through this process.
Here’s a short list of what you’ll need to be successful with your Balanced Scorecard approach:
Leadership buy-in. If you are trying to implement a BSC without the full commitment of your leadership team, you are wasting your time. The BSC is ultimately a change in approach to the way people manage, not a project. If the leadership team is not committed to change, this process will not work.
A common vision of what you’re actually trying to get out of a scorecard among the members of the leadership team. Is it smoother management? Or improved performance around key measures? In other words, you’ll need to determine why you’re doing this.
If you’re doing it yourself, you need to have:
- Strong communication skills—you’ll need to figure out where your leadership team is on the same page and where their views differ. Then you’ll need to figure out how to sort through these differences.
- The ability to work across all departments—a good rapport throughout the organization is important.
- Ideally, some experience in the BSC or performance management.
If you’re getting help, you need to look for:
- Someone who understands your business and your industry.
- Someone who is a great facilitator and has the ability to work with your leadership in the timeline you’ve set.
- Someone who has built a Balanced Scorecard before.
- Someone who has the flexibility to meet your needs, because not every BSC is the same. (Sometimes strategy maps have five objectives and sometimes they have 25 objectives—you’ll want your outside help to be able to manage this process regardless.)
Modifying What You Have
If you’re not starting from scratch, the other option is to modify what you already have. This is a recommended approach if you already have a strategic plan, a set of goals, a regular measurement process for the leadership team, etc. You can turn any of these “initial ingredients” into a BSC. If these things have already been established, it’s likely that your leadership team agrees that these measures are important—thus, the strategic plan is already validated.
Why put them into a BSC? Great question. Primarily because the framework lends itself to include a little more logic than most other frameworks, it creates some connections across your perspectives, and it will allow you to see how the different elements of your strategic plan link together into one story. The BSC becomes a cohesive story for your leadership team and the rest of your organization.
If you are a chief strategy officer (or you’re responsible for the strategy within your organization), you can probably modify the BSC yourself. You might need a little outside help, but with the amount of top-notch BSC resources out there, you’ll probably be fine. If you don’t have a high degree of comfort working at this level, your strategic documents and measurement systems are inconsistent, or your leadership team isn’t easy to pull into alignment, you may want to look to a consultant or agency for some advice.
Don’t fall in love with someone else’s strategy map and try to copy it—your strategy should reflect the strategy at your organization and tell your story.
The Balanced Scorecard Strategy
Now that you have your Balanced Scorecard approach down, you need to think about two major areas: building your scorecard and managing with a scorecard.
The thing to keep in mind while looking at your Balanced Scorecard strategy is that building a BSC is simply not enough. Yes, you do get your leadership team to start talking in the same language once your scorecard is created, but outside of that, you don’t get any benefits from the act of simply building it. The real benefits come into play once you manage it—so keep that in mind.
Moving forward, there are two approaches to building your Balanced Scorecard:
- Try to get it 100% right the first time. This entails spending a lot of time trying to make sure every single piece is perfect, getting the measure templates fully fleshed out, determining your five-year targets, and getting your ownership and accountability perfectly in place.
- Try to get it up and going quickly. To do this successfully, you’ll need to feel very comfortable with what we call the “80% solution.” The idea behind it is that by getting to your first strategy review meeting very quickly (even though you don’t have a lot of data to discuss), you’ll gain a lot of clarity. We recommend this approach, because you don’t know if you have good measures for your strategy until you actually try to have a strategy review meeting with that measure in mind. After that first meeting (or those first few meetings), you’ll likely want to change your measures, edit accountabilities, reset targets, create different charts, or revise the way you were looking at projects.
In our experience, all organizations starting with the Balanced Scorecard want to change some of their measures, targets, and initiatives. Because you will definitely be making changes, it’s better to just start using the BSC as soon as possible and flesh those changes out with your management team as you start seeing them. You should have a high level of comfort around your strategy map and a medium level of comfort around your measures. You’ll build up the rest of the details during these first few months of strategy review meetings.
The danger of trying to get your scorecard perfect before you start managing with it is that you’ll run into what we call “scorecard fatigue.” That means you will have already spent so much time managing your scorecard and so little time managing your strategy that everyone in your organization will start to hate your scorecard—even though you haven’t started using it yet! So if you can begin using it as quickly as possible, then you can modify it properly from the get-go and make it work for your organization.
Managing With The Balanced Scorecard
Managing your scorecard means simply using your scorecard.
On a regular basis (usually monthly), you should be reviewing components, themes, or critical success factors. Or, every quarter, you should be reviewing your entire strategy. (This part works differently depending on the organization, so we don’t have an opinion on which is better.)
The Balanced Scorecard management process ought to be looked at from an objective or “goal” level. You need to be asking:
- “How are we doing with our goals?” To answer this question, look at measures, charts and analysis.
- “What are we doing to improve performance?” To answer this question, look at projects, initiatives, and action items.
Your measure results will tell the story of how you’re doing and if you’re achieving your objectives. During your strategy review meetings, you should be keeping track of your action items and decisions. If you know ahead of time that you’re going to need to make a decision, you should send out information regarding that choice, which will help you through this process.
Every six months (or at least every year), you need to take a pulse of your organization's use of the BSC. You’ll want to determine if you’re spending more time managing your scorecard than you are managing your strategy. You should, of course, be spending more time with your strategy! Ask yourself (and your leadership team) whether you’re still getting value out of your BSC, whether it still reflects current beliefs about your strategy, and if it reflects the critical success factors for your organization. In answering these questions, you’ll ensure that your scorecard stays dynamic, alive, valuable, and reflective of your strategy.
Phew! You made it to the end. Hopefully reading this article has helped you learn more about the Balanced Scorecard and you’ve been able to note some hints and tricks along the way. Let’s quickly summarize our three main points:
- Balanced Scorecard Approach: You don’t have to start from scratch—use what you have in your organization as it results to your goals, key measures, and projects.
- Balanced Scorecard Strategy: Get a consensus around your strategy map or key goals, and then start using the BSC in your leadership team meetings as you build out the rest.
- Balanced Scorecard Management: Make sure your scorecard is delivering value for you—be sure to perform regular checks (via strategy review meetings) to ensure that you’ll meet your long-term goals.
In conclusion, remember that the act of setting up a Balanced Scorecard doesn’t actually get you anywhere. You’re setting it up in order to change the way you manage. Using the BSC is a process you should be getting value out of in order to execute your strategy. If you’re not getting value out of it, you’re simply not using it correctly—in that case, stop what you’re doing and read this article again!