I have a deep and abiding respect for Balanced Scorecard (BSC). In 1990, BSC architects Robert Kaplan and David Norton designed this innovative approach to performance measurement to compensate for financials ç?ber alles corporate measurement practices. Their invention provided a valuable and unique tool to assist those fathoming that short-term financial success achieved at the cost of damaging long-term customer relationships damages the business.
But such forward thinkers were even more in the minority then today. Businesses not attuned to the importance of non-financial measures ×?’ but attracted to BSC×?Ts impressive tool set - took to co-opting BSC and twisting it into a financial management tool. Developers of a prominent business process software system often used to support BSC once estimated that perhaps 70% of implementers perverted BSC×?Ts purpose in this manner. A lot like perverting CRM by converting it into software. And similar to software-driven CRM implementations, the P&L-based BSC implementation failures quickly piled up.
But you can hardly attribute these failures to BSC. Moreover, some 30% of implementers, the smart ones, got it right - and many derived very substantial benefits by applying BSC as intended.
So where×?Ts the problem? If most of these mishaps weren×?Tt BSC×?Ts fault, why am I picking on BSC by intimating it×?Ts out of date ×?’ especially when we incorporate many BSC tools into our own Visual Workflow approach to process design?
If you×?Tll think back to business-as-it-was in 1990, the time when many of us were migrating from DOS to Windows, you×?Tll probably catch my drift. Over the last 17 years, a long series of disruptive environmental changes has turned the business world virtually 180÷œ upside down. Which has turned most management theories circa 1990 irrelevant. Hence, unquestioningly accepting en toto any methodology laid down 17 years is risky behavior.
Prominent among these disruptive changes is the traditional balance of power between sellers and buyers shifting from ×??advantage-sellers×?? to ×??advantage-buyers.×?? Today×?Ts customers don×?Tt want companies ×??balancing×?? customer interests against internal interests. They expect companies to ×??unbalance×?? their goals to provide more customer value ×?’ regardless of who or what has to give up value as a result. And not to stray off-topic, but customers themselves are often giving up the additional value they receive as consumers by having to live with lower wages and benefits ×?’ or even without jobs.
But does this reversal of the traditional seller-buyer balance of power render BSC obsolete? Not hardly. Especially when we×?Tve become quite adept at redefining concepts like ×??balance×?? to compensate for changing realities. But the transition from seller-centric to buyer-centric business does change how we go about setting BSC metrics. And this transition sure does distort all those nice, four-quadrant graphics showing financial, customer, process and organizational outcomes all very neatly receiving equal weight.
Another disruptive change affecting BSC is the exponential leap in availability of application software that×?Ts occurred since 1990. Back then, we referred to functional silos, now looked upon derisively, as ×??centers of excellence.×?? Without more than scant availability of application software outside of (guess where) finance, functions couldn×?Tt ×??talk×?? to each other. So they didn×?Tt. But today, not only is application software nearly ubiquitous, but we also benefit from the wonders of EAI (enterprise data integration) and even more so the data sharing and exchange powers of the web. These advancements not only encourage ×?’ but even force functions to communicate and collaborate. And start dismantling their silo walls.
How do these changes in our technology backdrop affect BSC? When we look at BSC×?Ts four quadrants, technology is nowhere to be found. Where is it? Lumped together with process. Now, as frequent CustomerThink readers well know, I×?Tve long been on my soapbox insisting that process and technology must be coupled once outside manufacturing and production environments. However, just joining process and technology ×?’ and saying that alone adequately accounts for technology×?Ts potential contributions ×?’ sells technology short. It fails to take into account how radically technology can raise our business horizons and create new ones.
BSC does give technology short shrift ×?’ forcing us to step outside BSC to establish measures of how well we×?Tre leveraging what×?Ts now available to us (and available to competitors, as well). But a fatal flaw for BSC? Inconvenient, yes. Fatal, no. We can reshape BSC into ×??five quadrants×?? to more effectively plan and measure technology utilization. And technology-aware aware BSC consultants have overcome this hurdle.
But a third disruptive change ×?’ the migration from ×??functional×?? to ×??cross-functional×?? work ×?’ more fundamentally detracts from BSC×?Ts effectiveness. Thanks to the adult dose of application software injected into our business environments, work flows in a far more integrated manner than most of us could have imagined 17 years ago. And Kaplan and Norton did not design BSC to account for this ×?’ nor could they have, without rendering the approach ×??theoretical×?? and thereby irrelevant in 1990.
÷šBased on the assumption, correct at the time, that most work flows in linear fashion from relatively independent function to independent function, BSC espouses targeting only a select few work activities at discrete functions for performance improvement at any one time. But today, almost all work criss-crosses among interdependent functions ×?’ drastically reducing the likelihood that one activity can be improved without affecting others, or that one can be improved without improving others.
Improving performance in interrelated and integrated work environments requires scanning all interrelated functions and activities to locate not only where problems show up, but where root cause triggering events occur ×?’ which may be far removed from points where problems manifest. Further, we also have to identify how eliminating defects upstream will domino into changes to other interrelated activities.
Together, these collective issues make the practice of cherry-picking functions and processes to fix both impractical and ineffective. We can no longer just find ×??broken bones×?? and go straight to surgery. Today, we have to find complex causes of fractures to prevent them from recurring ×?’ then thoroughly assess the potential unintended consequences of surgery in one place on other organizational body parts before picking up surgical tools. And taking matters a step further, in today×?Ts complex environments we have to develop and apply powerful scanning tools that find indirect causes of problems plus anticipate problems before they occur in one place and radiate out to others.
BSC lacks the scanning and diagnostic tools needed today to keep a company×?Ts moving parts moving freely and fully productively and for the right purposes. And these limitations seriously detract from BSC×?Ts utility as a comprehensive approach to performance improvement and measurement. At minimum, BSC will require serious retooling before it can regain its prior level of effectiveness.
And there×?Ts still more disruptive change coming. Without wanting to ×??pile on,×?? the advent of Web 2.0 (and CRM 2.0) will further date BSC ×?’ while dating numerous other management theories and approaches as well. And we might say we×?Tre already feeling the impact. Web 2.0 pushes the sphere of company-related communication far outside the boundary, and control, of the company. A growing percentage of business-affecting customer communication occurs among customers and customers, or customers and ex-customers, or even customers and critics with an ax to grind. And while we cannot ×??manage×?? these external-to-the-company interactions, we still have to react to them. And measuring the effectiveness of our response will require metrics lying completely outside the realm of internal operations ×?’ and outside the realm of BSC.
So, what do we do - ditch BSC and ×??go onto the next?×?? Absolutely not. At least not in my opinion. While we do need to respect that Kaplan and Norton brilliantly designed BSC for a different time and a different place, we must also recognize that many tools imbedded in BSC tools remain relevant and powerful ×?’ and some are still ahead of the change curve. Companies that ignore these tools may very well suffer more adverse consequences than companies implementing traditional BSC in today×?Ts decidedly beyond-traditional business environment.
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