Beyond the Balanced Scorecard

The Balanced Scorecard is like the Energizer Bunny. As a management fad it keeps going and going almost a decade and a half after its introduction. It carries on because the ideas it encapsulates have inherent merit in the management of performance. Namely:

• Select some measures to focus on
• Set a target and track progress against that target
• Assign accountability for each measure
• Ensure that measures reflect the strategic intent of the organization
• Ensure a good representation of leading and lagging indicators – stop driving by looking in the rear view mirror
• Take a balanced view of performance, focusing not only on financials, but on customers, internal processes and innovation.

These are without question really good advice for an organization who is engaging to improve performance. But we can do better. Balanced Scorecard projects tend towards the long, complex and painful. Consultants come in for the six month engagement. IT gets involved and needs hundreds of thousands of dollars in new projects. Managers disagree for months on what is important, then once a scorecard is created, it is quickly forgotten. Did you know that you can be named to the Balanced Scorecard Hall of Fame without once reviewing your scorecard?

What’s more, the data that your IT department provides for your scorecard may be anywhere from 24 hours to 30 days out of date. With the Balanced Scorecard, you are indeed managing performance by looking in the rear-view mirror.

Integrating an ongoing planning, forecasting and monitoring process into your Performance Management program can make the difference between an irrelevant, ineffective and backward looking process and an engaged, active, forward looking management tool. Here is one example of how it can work:

• The highest ranking manager establishes top-down measures and targets for the organization for the next year.
• Direct reports assess their individual targets and determine what they can and can’t achieve, and what it will take to get there, including commitments for each month during the year.
• In a single meeting, the management team collaborates around these top-down and bottom-up views to come up with a single plan that everyone commits to.
• Direct reports produce a 6 month rolling forecast every month based on current orders, knowledge of the local market, production capacity, supply, pipeline, initiatives etc.
• The aggregate forecast is compared to the committed plan every month. Variances are addressed. If nothing can be done to eliminate the variance, it may be necessary to create a new plan and commit to a new set of targets. Once this is done, future forecasts are compared with the new plan.
• Personal dashboards allow manager’s to track key metrics of interest, either comparing forecast or actual values against the committed plan.

Such a process takes many of the tenants of the Balanced Scorecard approach, and translates them into a tangible, active management process. Rolling forecasts help managers identify problems and collaborate on solutions before the events actually occur. Dashboards can make monitoring a daily activity rather than a once a quarter presentation by the junior analyst.
In summary, Balanced Scorecards by themselves fail to achieve three tenants of effective performance management programs:

Collaborative: There is no built-in collaborative process to determine, agree on and commit to plan targets and forecasts.

Future-oriented: By focusing on historical actual results, the Balanced Scorecard fails to provide information about the months and quarters ahead. By integrating rolling forecasts, the process becomes much more engaging and relevant.

Real-time: Forecasting also overcomes the delays inherent in a system based on historical actual values. Plans and targets can be created based on forecast values which are far more representative than actual values that are hours or days old. Instead of arguing about which historical number is accurate, manager’s can collaborate on what they are agreeing to at the time of the discussion, based on all the information they can gather about past, present and future from their unique position “on the ground”.