10 questions to Balanced Scorecard Expert Gavin Lawrie, Managing Director at 2GC Active Management.
Key interview quotes:
- About metrics: “Adding more measures to a BSC usually doesn’t make it better – aim for about 20.”
- Why many BSC fail to deliver value: “The most common reason appears to be a simple one – that the managers within the organisation simply don’t use the Balanced Scorecard.”
- About successful implementation of BSC: “Ensuring it is ‘relevant’ to those who will eventually have to use it.”
- About BSC implementation: “Think about how your organisation is going to use the resulting Balanced Scorecard(s). “
From the UK I had a tremendous opportunity to lead Balanced Scorecard projects in Europe, the Middle East and Asia, and learn about the challenges of applying the techniques Renaissance had developed in the USA in other markets: our insights from this international work led to the team becoming thought-leaders in several areas – including the development of what would become known as the 2nd Generation Balanced Scorecard, and the ‘cascading’ of Balanced Scorecards within large organisations.
In 1998 David Norton left Renaissance to form another firm in the USA, and the firm began to break up. I set up 2GC in the UK in 1999, and it has since grown to become a leading global expert on performance management – working for clients in 40 countries across 5 continents, and completing roughly 200 Balanced Scorecard designs for a broad spectrum of clients drawn from private, public and NGO sectors.
During this time 2GC has also sought to remain at the cutting edge of thinking on strategic performance management, and is now recognized as a thought leader by both academics and practitioners.
2GC is a small firm, and we have had and used a Balanced Scorecard since our inception 10 years ago, and during that time we have worked for a variety of small firms.
What is clear from our experience is that Balanced Scorecard serves a slightly different purpose in a small firm compared to a large one – and this affects how you go about designing the Balanced Scorecard and subsequently how you use it.
If you want to find out more about Balanced Scorecard in small firms, 2GC has written a couple of case studies, a short presentation and a research paper on the topic – all can be downloaded for free from the 2GC web site’s resources section.
There is a rich literature on how to measure things – wherein discussions tend to be focused by ‘type of measure’: for example the literature on financial measures is distinct and different to the literature concerning measuring brand strength, which in turn is distinct from the literature on measuring workforce competence.
Recommending a single source here is tricky – but a good start is to look at the literature on measuring and managing intellectual capital which covers much of the territory at a high level.
Regarding performance management, most of the material available focuses on Balanced Scorecard – a lot of which simply restates the content of the original Kaplan & Norton articles in one way or another.
I guess there is a market for it, but in the main the quality is pretty low. One exception to this rule is a book called Performance Drivers by Nils-Goran Olve, JanRoy & Magnus Wetter, published in English translation in 1999. It is a bit dated now, but remains the best single book on performance management around I think.
There are some interesting books and articles about performance management thinking coming from the NGO and public sector, which has had to perhaps be more innovative over the years (as the original Balanced Scorecard concept was never really set up for non-profit organisations).
I particularly like recent work on the “Results Based Management” framework by the UN since 2000, and work from Canada on “Outcome Mapping” approach.
2GC has published a suggested reading list on performance management.
The most common reason appears to be a simple one – that the managers within the organisation simply don’t use the Balanced Scorecard.
If it isn’t used, it is hard to see how a Balanced Scorecard is going to do any good – and so from the outset 2GC’s aim in any Balanced Scorecard project has been focused on getting the device designed to be used. This focus has implications for how you design the device, and also for how you support its introduction into an organisation.
There are many aspects to consider, but a couple worth highlighting are:
- Keeping it simple, and
- Ensuring it is ‘relevant’ to those who will eventually have to use it.
Adding more measures to a Balanced Scorecard usually doesn’t make it better – aim for about 20.
Ensure ‘relevance’ by involving those who will use the Balanced Scorecard directly in its design – even if this results in a less ‘sophisticated’ design than experts might come up with.
Clearly it is easier to justify the cost of Balanced Scorecard design for a senior team (where a small improvement in performance can yield substantial value), and as a result most Balanced Scorecard work we do is for top teams.
But in sufficiently large organisations, similar value from better decision making can justify developing Balanced Scorecard for lower level management teams.
2GC has had the good fortune to be involved in the running projects to develop ‘cascades’ of Balanced Scorecard in a variety of private and public sector organisations – and we have documented these experiences and the learnings arising in case studies and research papers that can be downloaded from the 2GC web site.
The idea that Balanced Scorecard is somehow different in form or should be restricted to use in functional departments (usually HR, or IT) arisises from a fairly basic misunderstanding of what Balanced Scorecard is – and seems to be the result of attempts to sell differentiated management books rather than any useful understanding of the topic.
Balanced Scorecard can be applied usefully (though perhaps not always economically) to any management team’s activities regardless of functional specialisation.
Although the original suggestion by Kaplan & Norton was that Balanced Scorecard would help senior management teams ensure their strategic plans were properly implemented, since 1992 the framework has been extended to cover a wider range of uses.
2GC recognizes four main ones:
- Strategic management
- Operational management
- Monitoring and evaluation
- Payment of incentives and rewards.
All uses work OK, but each use demands a quite different approach to the selection of measures used within the Balanced Scorecard, and are supported by quite different patterns of use by the managers concerned.
A major cause of problems is where a design processes best suited to one kind of application is used to build a Balanced Scorecard used for some other purpose – usually the results of such compromises fail.
For an illustration, read the “Arran” case study that illustrates this problem occurring in a Financial Services firm.
But whether this means the managers understand the potential value of a well designed Balanced Scorecard is not at all clear.
Unfortunately ‘completing’ a Balanced Scorecard is much easier than building a good one, and for many people their only experience of Balanced Scorecard has been a dodgy device produced by unscrupulous consultants or accountants looking to make a quick buck: a disappointing kind of short-termism from the consultancy profession that does no one any good.
However the basic need that Balanced Scorecard addresses is persistent – however it is done, managers need some mechanism to identify and track key financial and non-financial measures.
2GC is proof that organisations are willing to invest to develop Balanced Scorecard (we get almost all our revenues from such work).
Most of our work comes by referral from past clients – which suggests that when you do Balanced Scorecard well, it truly adds value.
In our view, a well designed Balanced Scorecard comprises a selection of about 20 financial and non financial measures, reported quarterly.
The idea that you might need specialist software to support this activity for a single Balanced Scorecard is laughable.
Our view is that specialist software is not required (and is sometimes a distraction) for reporting a single Balanced Scorecard – the software is typically expensive compared to the alternatives (e.g. Excel) and usual not much more functional.
However if you have to report many Balanced Scorecards in a period (more than five is our current thinking), automated reporting solutions become more attractive.
It really depends on your organisation though, and there are no reliable hard-fast rules you can follow.
What is clear however, is that none of the (about 100) available software solutions will help you design a Balanced Scorecard – they are simply automata that make reporting a Balanced Scorecard design easier (regardless of what the vendor might say).
Editor's note: Our attempt to help with the design is a free Strategy Wizard. Obviously, it will never replace such experienced consulting firms like 2GC but might work as a starting point for the Balanced Scorecard.
ADVICE TO GET STARTED
Simply having a Balanced Scorecard that everyone ignores won’t make anything better (any more than having a strategic plan that sits on the shelf will lead to strategic success).
So from the outset think about how your organisation is going to use the resulting Balanced Scorecard(s).
- How are management meetings going to change?
- How with the Balanced Scorecard integrate with your budgeting and planning systems?
- How will you train the managers in your organisation to get best value from the device?
- If you are building more than one Balanced Scorecard, how will you ensure that they all ‘align’ with each other to deliver the organisation’s overall objectives?
All these issues are peripheral to the activity of designing a Balanced Scorecard – but require careful thought and investment.
Approach the design of a Balanced Scorecard as a disconnected exercise, and you’ll struggle to get it to ‘work’ within your organisation.
Editor's note: An implementation plan is must for the Balanced Scorecard. We shared our thoughts on the topic in this 5 steps implemenation article.
A small firm based in Europe, but with representative offices the Middle East and Asia, 2GC comprises a collection of dedicated performance management experts offering Balanced Scorecard design and audit services, and Balanced Scorecard training to private, public and NGO sector clients on a global basis.
A particular area of expertise is the design of sets of Balanced Scorecard within large/complex organisations – 2GC has worked on some of the most complex multi-level strategic Balanced Scorecard design projects ever documented.
For more information on 2GC and its experience, see the 2GC web site.