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Do Scorecards Deliver Value?

Are balanced scorecards really changing the way we drive performance?

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Summary

The balanced scorecard came to prominence in the 90's as a progressive performance panagement methodology that positions external factors with prominent internal issues to appropriately influence management decision-making. Ventana Research views the balanced scorecard as a methodology that enables organizations to bridge the gap between strategy planning and operational execution. The balanced scorecard is a metrics-based performance management approach that uses a concise strategy model at its heart. Most experts agree that the principles of a top-to-bottom "dynamic" performance management process, as embodied in the balanced scorecard, are a significant improvement to earlier performance improvement methodologies. But after more than ten years of phenomenal adoption in the industry, few organizations are able to demonstrate the expected levels of performance improvement or integration with traditional management disciplines, such as budgeting, that govern alignment of resources with strategy and implementation of strategy.

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If the scorecard is such a good approach to managing performance improvement, then why are organizations not getting the theoretically achievable ROI's?

The scorecard is a very different way of managing performance, alien to managers that use traditional large volumes of raw operational information, combined with financial data and controls, to make decisions. The introduction of a strategy model that constrains the volume of information used to make performance improving decisions in the scorecard is both a good concept and counter-intuitive to this scenario. Experienced managers develop keen information analysis skills and resources to help them weed out tacit information indicative of performance levels. While this may initially be an easier solution for experienced industry managers to continue using locally, there is no common performance vocabulary across the organization, which results in the most significant performance-enhancing opportunities going undiscovered.

Organizations often fail to account for the scale of change required to achieve large magnitudes of performance improvement. This compounds the problems of successful implementation already mentioned. Existing reporting, planning, and resource allocation processes must be re-engineered to support the more holistic performance paradigm of the scorecard. Otherwise, these processes become barriers to success.

Other organizational behaviors — such as project and programmatic management capability and organizational politics — can form further barriers to implementation.

These internal issues are further complicated by the early software applications developed to support scorecards and performance improvement. Playing to their strengths, BI and ERP vendors like SAP and Hyperion marketed the importance of dashboards and reporting capabilities with success. While these software features are important to scale the completed system, they have served to divert attention and resources away from the critical internal issues already discussed. Vendors such as Pilot Software are creating the foundations of "second generation" scorecard systems that can support the identification of the relevant critical development issues, in addition to required reporting and data analysis features.

Instead of continuing to support supplemental decision support information systems that exist in parallel to the scorecard, organizations need to tease managers away from inconsistent, local approaches, and focus them on validating the links between different parts of the scorecard strategy model and on better understanding how the information interconnectsand how target audiences will assimilate and use the information.

Assessment

Ventana Research believes the scorecard is one of the few approaches that provides a "common performance vocabulary" that enables managers from different organizational levels and functional or cultural backgrounds to identify and drive strategic-level performance improvement. The scorecard can enable very significant performance improvement by unlocking the organizational knowledge within individuals across functional and cultural boundaries to provide real strategic context. The scorecard potential for vast improvement in performance comes from enabling organizations to bridge the strategy planning-to-operational execution gap. However, organizations continue to underestimate the extent of change required across management processes and the difficulty of implementing new modes of collaborating on decision-making to realize the scorecard's performance improving potential.

Ventana Research advises clients to carefully consider the far-reaching impact of scorecard projects, the performance improvement levels the organization can support, and the levels of resource commitment required before deciding if a scorecard is the most suitable approach. If organizations do not require very significant improvement in the levels of performance they seek, Ventana Research recommends they consider performance management approaches that are easier to implement.

Martin McCann is principal of Performance Advantage limited and is research director focused on performance management at Ventana Research.