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HOW TO BUILD A BALANCED SCORECARD*©

Introduction

by

Arthur M. Schneiderman

The balanced scorecard (BSC) has undergone significant change since its widespread popularization in the early 1990s.  Although the first balanced scorecard was an integral part of its creators’ strategic planning process, its subsequent emulations focused on it as a simple instrument rather than as one element of a total planning system.  Consequently, most early adopters just took their myriad of existing non-financial performance measures and force-fitted them to an arbitrary framework that classified scorecard metrics into the prescribed categories of financial, customer, internal, and learning and growth. 

I’ve chronicled elsewhere the resulting common failure modes.  Number one on that list was:

“The independent (i.e. non-financial) variables on the scorecard are incorrectly identified as the primary drivers of future stakeholder satisfaction.”

Unfortunately this fundamental misapplication of the BSC concept is still all too prevalent. 

However, academics, consultants, and practitioners alike have learned much over the last decade.  Leading edge BSC proponents recognize that a meaningful scorecard must be viewed as an integral part of an organization’s overall management system.  But to build on its brand image, “Balanced Scorecard” promoters have used its moniker to provide a name umbrella over its continuously redefined and expanding boundaries.  Today, in best-practice organizations, the BSC is tantamount to their business planning system.

But having recognized that the BSC itself is only one part of a comprehensive process, there has still been little documented about that process itself.  What has been written describes the method for its creation and use in such general terms that a practitioner is left with insufficient detail on exactly what needs to be done.  The objective of this e-paper is to provide my view of that missing level of detail.

In Part 1, I will describe a 9-step process that assures the identification of a manageable and actionable set of BSC metrics that link directly to an organization’s strategic objectives.  But organizational success - just like a coin or a magnet - has two sides: planning and doing.  Successful organizations excel at both.  They do the right things and they do them right.  My focus in this e-paper will be on the planning side of that fateful coin.  I refer you to my other writings on process management (see also my publications) for more on its control, improvement, and reengineering facets.

Part 2 addresses the difficult task of translating strategically chosen stakeholder segment requirements into a prioritized list of internal process improvements.  It is the improvement of these targeted processes and sub-processes that will make-or-brake the realization of strategic success.  What makes identification of these vital few processes difficult are their many interdependencies and varying impact.  Seeing through that cloud of complexity and uncertainty requires the use of some unfamiliar analytical tools and an appropriate balance between established facts and the organization’s collective instincts.

Finally, in Part 3, I will describe the fundamentals for extracting the appropriate set of BSC metrics from the near-infinite list of possibilities that still exist even after the vital few processes are identified.  Finding those leveraged internal process measures is key in achieving a successful BSC implementation.

*This e-paper was first posted on December 20, 2000 (Part 3 was posted earlier).  It will be appearing in hard copy as a Chapter in the Handbook of Performance Measurement, Michael Bourne, Editor, Gee Publishing, 2001.

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Part 1

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Last modified: August 13, 2006