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Balanced Scorecard

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Balanced Scorecard

When keeping track of an organisation's strategic performance matters, one framework has come to dominate.  2GC are world-class experts in the design and implementation of modern Balanced Scorecards.

We help organisations to design and implement Balanced Scorecard solutions. 2GC’s “3rd Generation” Balanced Scorecard design method evolved from advanced Balanced Scorecard design work in the late 1990s, and since gone through continual refinement, and now represents the state-of-the-art in modern Balanced Scorecard design. It has been applied in organisations from commercial, governmental, non-profit, NGO sectors, and from very small through to large multi-national organisation types, and is at the heart of the Balanced Scorecard Solutions offered by 2GC.

At its core, the Balanced Scorecard is simply a table containing a few numbers that record specific features of the organisation. These 'actual' numbers are matched to ‘target’ values for each feature. By comparing actual performance against the target values, managers can spot, and intervene to correct issues before they become problems. The challenge with Balanced Scorecard is not the concept but the content.

Balanced Scorecard: It's all about the design

Balanced Scorecard is useful only when the measures and targets chosen are appropriate. Working out what these are is not easy. The method of choosing which measures and targets to use is critically important for Balanced Scorecard to be successful. Since 1992, huge effort has gone into developing and refining methods to make this design process easier to undertake and more reliable.

1st Generation: 20 Measures and Targets in a Table

The earliest Balanced Scorecards were simply tables containing a concise mix of Financial and Non-Financial measures, each measure having one or more targets associated with it.  In the original articles written by Robert Kaplan and David Norton designers were encouraged to choose a small number of measures and to link these directly to the organisation's Mission, Vision and Strategy.  Choosing what measures to use though was hard because at that point no one had come up with a reliable 'design process' to use - and so the resulting Balanced Scorecards often had strange and inappropriate measures within them; partly for this reason the majority of these early Balanced Scorecards failed.  1st Generation designs are still being created today, but there is no good reason for this: most new designs use one of the later Balanced Scorecard designs (which work better).

2nd Generation: Strategy Maps, Objectives and Linkage Models

Soon after the initial Kaplan and Norton papers were published it became clear that badly designed Balanced Scorecards were both common and not very useful.  The issue was quickly identified to be poor measure selection, and a design process that was hard for managers to participate in.  Rapidly (within a few years) an improved design approach emerged that added a second element to the Balanced Scorecard design - a graphic illustration of the strategic objectives that made up the organisation's strategy showing a small number of 'strategic objectives' and some simple causal linkages to show inter-dependencies between them.  Building this diagram helped managers to validate that the strategy reflected in the Balanced Scorecard was the right one, and gave strong clues about which measures to include in the actual measure / target table.  Hugely better than the 1st Generation, the introduction of this new design approach triggered a new wave of Balanced Scorecard development - and a cohort of Balanced Scorecards that (in the main) actually did some good!

3rd Generation: For Speed, Alignment, Quality

The huge success of 2nd Generation design methods, and the many Balanced Scorecard designs that were created using them, highlighted some deeper issues with the framework.  Many 2nd Generation designs were not being used effectively because people found agreeing targets for the measures hard, and it was almost impossible to effectively deploy this kind of Balanced Scorecard in organisations with many units / divisions.  The issue in both cases was found to be a lack of consensus within the management team about what the 'end point' of the strategy would look like.  Without a good understanding of the end-point, units had difficulty working out what they could or should do to contribute to achieving the strategy, and knowing if they had 'done enough' of it.  The solution was to introduce a third element to the framework - the "Destination Statement" - a concise agreed quantified description of the hoped for effect of implementing the strategy.  This extra device made Balanced Scorecard design faster, massively helped deployment in multi-unit organisations, and improved the quality of measure and target selection.  Today it remains the gold standard design approach to use.

Links to other frameworks

Balancd Scorecard fits into a standard progression of performance management tools:

  • Measures - simply collecting information on an activity or outcome within an organisation
  • Measures and Targets - adding information about what level of activity or outcome is required / expected, and usually a time when the required performance should be delivered by
  • KPIs - a small number of Measures and Targets that are communicated widely within an organisation as 'priority' performance goals to be considered
  • OKRs - KPIs linked to a clear outcome that is the reason why the KPI has been selected
  • Balanced Scorecard - a collection of KPIs / OKRs that are linked thematically or causally to provide a more complete picture of the  outcomes required for an organisation
  • Strategy Execution framework - advanced Balanced Scorecard style measurement systems linked to a clear longer term view of the future state required for an organisation and a set of management behaviours that focuses upon the communication and monitoring of a programme of strategic change - examples include 3rd Generation Balanced Scorecard and Results Based Management systems.

By providing a richer landscape for KPI and OKR type information - via causal links between and by providing greater background context through the Destination Statement and other supporting documents - Balanced Scorecard makes it easier to communicate organisation priorities, to monitor progress and intervene to improve performance as required, and to define the most appropriate underlying measures and targets.

To dig deeper

There is a wikipedia entry on Balanced Scorecard, many books that discuss Balanced Scorecard and quite a few websites with at least some information about the topic.

A good place to start is the resources section of this website - which contains a number of relevant FAQs, case studies and research papers. The resources section also contains a curated list of recommended reading materials.

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