guest column | Business

Fatal flaws in Balanced Scorecard execution

A simple performance management tool suffers from too many metrics and poor alignment with corporate strategy

Twenty-six years after it was conceptualised, the Balanced Scorecard (BSC) continues to be a staple in the manager’s arsenal. Its holistic focus, simple design and widespread acceptance make it a tool for corporates, NGOs and even governments. Most modern organisations implement some form of the BSC for performance management. However, very few of them are realising the true benefits of the tool.

Results are often relegated to Excel sheets in unused folders, and the blame for that lies squarely with poor design.

Three fatal errors

Fundamentally, the BSC is meant to be a reflection of a firm’s strategy. This implies a top-down approach, starting with a strategy map and cascading across the organisation. The 2018 Global BSC Usage Survey, which includes India, indicates that companies that engage in cascading, tend to be 45% more satisfied with their outcomes. Our practice corroborates this. In the instance of one client, achievement rates on shared metrics exceed that on individual metrics by over 20% — largely due to collaboration between teams. In general, though, many organisations fail to articulate a strategy map and create scorecards as a bottom-up process, completely defeating the purpose of the exercise.

The next fatal error is looking at metrics for metrics’ sake. We’ve all heard ‘what gets measured, gets done.’ This has led to an overdose of metrics. Many organisations use the BSC to capture a laundry list resembling the job description. Can any one person actually focus on dozens of metrics? Our work has reinforced our belief in having not more than 5-10 metrics per individual.

Again, the 2018 survey showed firms with fewer metrics derive greater satisfaction from the tool. It’s critical to ensure these metrics are truly important and measurable. An MXV analysis across thousands of scorecards showed the average rating on quantitative metrics 2.7 (out of 5), while qualitative metrics averaged 4.2, or 56% higher and clearly demonstrating various rating biases. Having fewer metrics ensures alignment and clarity. Making metrics measurable reduces bias and quickens the review cycle.

The third error is to do with inertia. Scorecards need to be dynamic. In some environments, for example start-ups, that may be as frequent as a quarter. Even the most slow-changing environments need an annual revision that ties into the strategy development and business planning process. Again, we find many scorecards are not reviewed for several years, making them as obsolete as the processes they replaced! Automation can help, putting control in the hands of managers and enabling them to use the tool as it was meant to be.

The BSC is an elegant tool suited to the needs of Indian organisations. Thoughtfully designed, it can be a key driver of company performance and growth instead of just another HR initiative that managers pray to avoid.

(The writers are with MXV Consulting, a strategy and general management consulting firm)

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Printable version | Mar 29, 2020 3:37:38 AM | https://www.thehindu.com/business/fatal-flaws-in-balanced-scorecard-execution/article24427466.ece

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