Balanced Scorecard Weaknesses: External Factors are not Considered

I’m manager in a bank of Iran and I’m a lecturer in MBA courses and use BSC in our strategic course. I’m a PhD candidate in strategic management and my dissertation was about developing BSC in a network business. I would like to cooperate with your company to introduce extended BSC and I think the customers would be interested in it. Actually, people in my country are interested in BSC for effective implementation strategies, so I think the Balanced Scorecard concept has some deficiencies and it’s better to adjust it.

Check out LinkedIn Profile Saeed Fallah, PhD, Manager, Sarmayeh Bank,

Lecture in MBA course (Strategic management,Marketing Strategy), Iran

The Balanced Scorecard model is an appropriate tool for measuring the financial performance and state of profitability of an organization. This tool uses four dimensions which are growth and learning, internal procedures, customer and finance to implement and also to formulate strategies.

Balanced Scorecard model has its own advantages and disadvantages. One example of its weakness is that it only uses four dimensions and ignores the other factors that may play important roles in the organization. Also, by considering the four input dimensions that are used by this method, it can be implied that the main focus of this model is on internal factors of organization, however; in today’s world, organizations have more interactions with each other than ever before, so providing and implementing organization strategies without considering other factors in the business environment would not be appropriate.

On the other hand, organization should considered as external factors in formulation and implementation of their strategies. Today’s organization works as parts of networks so their strategies must be based on realizing its position in a network and also realizing the other network’s participant’s roles and positions. Balanced scored cards with their limited features would not provide a good response for an organization’s needs.

In an innovative era organizations should use more complex tools. I have seen your product and I found it useful. We can work [BSC Designer: more about partnership with BSC Designer] on a good solution for developing it and I can introduce it to the many organizations in my country.

Regards
Saeed Fallah

A note from BSC Designer business performance experts

Thank you very much for such detailed feedback about the Balanced Scorecard and especially for pointing on potential weaknesses of this business framework. We have been reviewing recently another business framework, called 7-S and it appears that semantically it focuses on internal aspects as well. There are no “S” responsible for external communication either.

For my point of view. The Balanced Scorecard (as well as 7-S framework) incorporate this externally-oriented perspective in other perspectives. Let’s have a look at example:

  • The top goal of the company might be “Increase revenue” (Financial perspective). How can a company increase revenue? It can improve its own sales or it can work with partners (we are talking about external partners, but we are still in a Finance perspective).
  • What should partners do to work more effectively with its customers? (Customer perspective) Or better said, how can our company help partners to work more effectively with customers?
  • How can we optimize processes between us and or our partners to do this? (Internal business processes).
  • What should we learn to be able to find more partners and work better with them? (Learning and growth perspective).

As you noted an external factors should be taken into account when a strategy is designed. I believe that the Balanced Scorecard doesn’t limit a strategy experts in adding a valuable strategic information that will take into account external factors. But still, this might be a challenging task.

How do you know if your Balanced Scorecard works? Learn the control cycle!

Talking about potential weaknesses of the Balanced Scorecard I remember another article that we have on BSC Designer: How do you know that the Balanced Scorecard works or doesn’t work for you? There we discussed that the BSC doesn’t have any self-test mechanism unless implemented by those who will use the framework in a selected company. I don’t this this is a disadvantage of the business framework, as it is better to say that it is more of a global weakness of the business performance management domain.

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