It’s fifteen years ago that I was introduced to the Balanced Scorecard, and in all my consulting work on strategy since I have consistently incorporated its approach. The concepts are well known and applied by a reasonable number of organisations in Kenya, but still only a small minority. So let me take you through the basics and how they were introduced into the world.
The Balanced Scorecard was launched in January 1992 by Robert Kaplan and David Norton through an article in the Harvard Business Review. They had observed that the scorecard of most companies was unbalanced, with disproportionate emphasis on revenues and costs, cash flows and profits, return-on-investment and earnings-per-share. Yet these are but the consequences of other factors, ones that drive financial performance.
So they helped us with a simple and universally applicable way of looking at a business from four key perspectives: the satisfaction of our customers, through the products and services we offer them; the wellbeing of our people, which they described as “learning, innovation and growth”; systems and processes; and yes, financial performance, with particular emphasis on pleasing shareholders.
Even at its outset, the Balanced Scorecard noted the linkages between the four perspectives, encouraging companies to identify the cause-and-effect relationships between them. They also pointed out that the financial performance measures of the day over-focused on backward-looking and short-term measures.
Plus, the fact that business leaders needed to show how what was happening in the other three perspectives resulted in strong financial results: they are the lead factors and the financial perspective is the lag one. Having said that though, finance must be available to fund the lead factors, so that perspective also leads. That’s the interconnectedness which is revealed so clearly by he Balanced Scorecard.
In their article, Kaplan and Norton pointed out that while traditionally it was financial experts who put together a company’s performance measures – they were after all, unbalanced in favour of the financials – now it became clear why all of the senior management team needed to participate in putting their company’s scorecard together, in a spirit of “systems thinking”. And this was also much more likely to result in productive collaboration between them.
But relative to how we see the Balanced Scorecard today it was relatively “primitive” at the outset, merely getting companies to lay out operational numbers for the four pillars, through what one might call a performance measurement framework, rather than offering a full strategic performance management tool.
The initial version was followed by a second-generation Balanced Scorecard in 1993, and a third generation in the late nineties. Since then there have been overlays that merely reflected what was trendy at the time – first Total Quality Management, now sustainability and Environmental, Social and Governance issues (where the interests of shareholders are expanded to include all key stakeholders), and maybe AI next. Meanwhile, although the Balanced Scorecard was initially only applied to for-profits, its use was expanded to not-for-profits and to government, as the four perspectives apply equally well everywhere.
Not everyone who has applied the Balanced Scorecard approach to their strategic planning has succeeded in making it work for them, and from what I have seen the main cause of failure has been overcomplicating it and also coming up with far too many objectives and measures. The other issue is not following through with managing and adapting the implementation, so like many other kinds of strategic plans, it just gathers dust on a shelf.
And as any other strategic plan it must be cascaded down the organisation, so there is vertical as well as horizontal alignment, and indeed it should reach the individual level, with each person knowing how they contribute to the overall objectives, and indeed to the overarching vision.
I and my colleague Twalib Ebrahim have helped all kinds of organisations to work with the Balanced Scorecard, from large government bodies, development partners and corporates, to NGOs and research institutions, to large and small family businesses. For our most sophisticated clients, when we explained our approach they worried it would be so simple as to be simplistic. And among the less exposed, those who had never imagined they could become “strategic thinkers”, their concern was whether they could handle it all.
Once we got going though, the inspiration of Kaplan and Norton, applied by us, pulled them all through to become enthusiastic disciples. So if you are not familiar with the Balanced Scorecard, I encourage you to find out more about it and to have a go.
