The idea of a “balanced scorecard” emerged from the quality movement in the 80’s with Deming et al and then Kaplan and Schneiderman developed those ideas into the scorecard in the 1990’s.
A balanced scorecard aims to translate the mission/vision/strategy of a business into a comprehensive set of objectives and performance measures that help track and focus efforts. The idea also being that if these measures include several categories e.g. financial, customer, productivity, people that this “balance” of measures should also enable or encourage a more balanced performance that in turn is more sustainable.
Whilst most businesses have some kind of a scorecard with different categories of measures, very few businesses then ensure the consequences are properly aligned. This article aims to highlight the need for balanced consequences aligned to the balanced scorecard.
Key Point: The balanced scorecard of measures only generates a balanced outcome IF the management consequences are also balanced. This rarely exists. Nor is it commonplace that firms fully understand or specifically assess the consequence environment.
A new MD of a large operational business (>50,000 employees) wanted to get the right measures in place to drive a performance turnaround. He took the attitude “what gets measured gets done”, which is very valid assumption. However, what revealed was that measurement alone does not ensure behaviour.
Instruction from MD was to “sort out the scorecard… I want a balanced scorecard, with these columns, in this font, and that colour…”. Lots of focus on the tool itself and how it was to look and very little curiosity about the reality of the consequence environment.
My fear was that we might end up with a shiny new “balanced” scorecard on paper, but unless the consequences that managers experienced were aligned then it was likely that performance would not change.
Some persuasion later, I undertook to explore further, which involved interviewing various General Managers. Current measures were identified plus what happens (consequences) when each measure was off-track. As predicted, some performance failures resulted in almost no consequence, yet some measures that were off-track resulted in dire consequences. The consequences were not balanced. As a result the focus and behaviour of managers was also not balanced. And unsurprisingly the business results were also not balanced.
It was also interesting to note that only negative consequences (the stick) were in place. There are different ways to assess the severity of the consequences, but one approach used was to identify the “exposure” that managers experienced when their performance was off-track. In other words the seniority, frequency and the public nature of any consequence. That could be a public recognition/reward (positive) or a public admonishment (negative).
When we have conducted this review elsewhere it tends to be the case that only a small number or measures (one or two) actually drive behaviours, as a result of their consequences. In this particular example there was one “stand-out” measure, which incurred high negative exposure or consequence.
The measure was “clearing the product from the factory site each day”. Basically, making sure the items were sorted and onto lorries for dispatch and out of the factory by close of play, daily. This often required high levels of over-time (cost was also key measure on the scorecard) to achieve the daily clearance.
A daily conference call with the Ops Director was held and if any GM failed to achieve this measure then the responsible GM was admonished in front of all other GMs. Senior, frequent and very public consequence, and in turn a high impact on managers’ behaviours.
All other measures were subordinated to achieve the daily clearance. This included profit, customer, safety, security.
So, this particular consequence certainly drove behaviour to achieve a focus on this particular measure, no doubt about it. However, if the leadership wanted balanced behaviours and to establish a more sustainable focus, behaviour and performance, then they needed a more balanced consequence environment aligned to all the key measures.
Key Learning Points
There is no balanced scorecard unless the behaviours and consequences are also balanced.
Identify which measures actually drive behaviours (only a few typically do).
Understand the causal dynamics (what happens when the measures are off-track).
Identify consequences (ideally positive) across the scorecard measures that will deliver a more balanced management behaviour, effort and performance.
David Stephenson is a Consulting Partner at Outvie and an expert in business and organisational change