What next for the Balanced Scorecard?
From its earliest days nearly 25 years ago, Balanced Scorecard has evolved. Although hugely popular from the outset, this evolution has been driven by two things - initially a desire to improve the design of Balanced Scorecard itself and its associated design methods (mostly to make the design process more reliable, faster, and more inclusive), and later, the desire to broaden the ‘footprint’ of Balanced Scorecard to enable it to be used by a wider range of organisations and functions (so, for example, agreeing on ways to modify the device to make it more useful to Public Sector organisations). You can read more about the evolution of Balanced Scorecard, and how it was adapted to work better in the Public Sector in other articles by 2GC.
We think that this ability to evolve has been a core attribute of and differentiator for Balanced Scorecard’s continuing relevance to modern management, but awareness of this evolution has prompted many to wonder how the tool will develop in future. It is clear from history that the tool has evolved to fix flaws, and to allow its use by a more broadly based set of organisations, but during its evolution it has not changed its purpose. In the 1992 Harvard Business Review article about Balanced Scorecard (the one that really kicked the idea into public awareness) Balanced Scorecard is described as a tool focused on helping organisations implement their strategies; its focus remains the same today.
Perhaps because of its popularity, many suggestions have been made over the years about adapting Balanced Scorecard - usually by proposing to relabel some other management tool as comprisng some part of or all of a Balanced Scorecard. Without exception these proposed adaptations have failed to gain much popularity. For example, it has been regularly suggested (e.g. 2002, 2008, 2012) that a decision support system called analytic hierarchy process (AHP) should be used to select objectives and measures within a Balanced Scorecard in place of whatever best-practice process was around at the time of the suggestion. However despite these proposals (which are all well argued), use of AHP in this way remains a research curiousity: in our view because use of AHP changes fundamentally the purpose of the tool - pushing it towards strategy formation and decision support (the roles AHP is most useful for) and away from its role supporting management of strategy implemention.
In James Creelman’s posting he anticipates four new things being added to future Balanced Scorecards. As a recent article in The Economist magazine observed, people are not very good at predicting the future, and so it should be hard for us to assess James’ suggestions. But for once we have an advantage - three of the things he anticipates are already here today, and for reasons we set out below, we think it very unlikely that the fourth idea will ever materialise.
The four things he anticipates are:
Activity and Outcome based designs are a core element of the ‘3rd Generation’ Balanced Scorecard design approach, and were first characterised as such in a 2GC research paper from 2002. The use of devolved Balanced Scorecard design methods based on (and enabled by) key elements of the ‘3rd Generation’ design approach, and their role in supporting rapid and robust strategic alignment in large / complex organisations has been described in multiple case studies and research papers dating back over 10 years. The idea of using Balanced Scorecard information to inform performance conversations is a central part of the fourth step (Engage) of 2GC’s well proven / established ACME strategy implementation framework, and as James himself points out, is probably already included in other similar frameworks (such as XPP). So all this is great news - we fully endorse James’ thinking on these three points - and have real world experience to back up his hope that these changes would be valuable developments for Balanced Scorecard.
- Revising the definition of Balanced Scorecard objectives and measures to focus on strategic implementation Activities and Outcomes
- Using devolved design methods to support more rapid cascading of Balanced Scorecards in complex multi-unit organisations
- Refocus Balanced Scorecard usage on enabling managers to have strategically focused performance conversations
- Adopting predictive analytics as a method for selecting strategic objectives (and indeed the whole strategy) used by an organisation
However on the fourth point - the use of predictive analytics - we think it is highly unlikely that Balanced Scorecard would evolve in this direction. The reasons are simple:
Balanced Scorecard is a powerful and effective tool for helping organisations implement strategy. In the near 25 years since it was introduced it has continued to evolve to become ever better suited to this task across a broadening range of organistion types. We are sure this trend will continue - and are reassured that the evolutions that have happened are still being retrospectively endorsed as valuable in articles such as the one this feature has focused on. Although we do not know for sure how Balanced Scorecard will evolve next, it is likely we will know about it sooner than most - and if you subscribe to our regular email updates, as soon as we know we will let you know too!
- First, in our sustained experience, when managers are given free choice about what information to collect to support management of strategy implementation activities, roughly 50% of the measures they choose are ones that are ‘hard to collect’ - either because they are difficult and / or expensive to collect regularly (e.g. customer / supplier / employee / investor perceptions), or difficult / expensive to define measurably (e.g. strength of branding or innovative skills compared to others). This is not to say these measures are not useful, just hard to collect at all - let alone to collect sufficient data in a form that would support the intense analysis of the kind required for James’ ‘predictive analytics’. But if you leave out these hard to collect data (as you do not have it), we think that the results of any subsequent ‘predictive analysis’ of what remains would be of questionable value.
- Second, even data availablity was not an issue, there is no reliable way of identifying which of all the possible measures available should be included to ensure that your ‘predictions’ are correct. If you knew before hand what the disruptive elements that will affect the future are, they would already feature in your strategic thinking. So to be useful the ‘predictive analysis’ needs to find insights that you don’t already know about - and for any such insights to have useful effect, the key decision makers need to be persuaded to be mindful of them. We think this in most cases is an unrealistic chain of events. Not only do you have to identify the unknown factor, you need to persuade decision makers to act upon it before there is any evidence to support it being a critical element affecting future strategy.