Balanced Scorecard Implementation Pitfalls to Avoid (part 1)
There are many Balanced Scorecard implementations where companies don’t seem to get all the benefits described above. Research and experience have identified various traps and pitfalls main ones to avoid are listed below.
- Taking Strategy Design shortcuts. Many companies take a balanced scorecard that has been designed by a similar organisation in their industry and just copy it. Others take the four box BSC model and hold a brainstorm session to map objectives into each of the perspectives without ever reflecting on the strategy. Both of these can lead to a BSC that does not reflect your strategy. Creating and agreeing on your own strategy requires efforts, discussions and thinking. Designing your strategy should involve all key stakeholders and ensure that you have a unique set of interrelated objectives that reflect your business at this point in time. Initial external facilitation often helps and allows to overcome internal politics and power struggles.
- Not Creating a Strategy Map. Missing out strategy maps is one of the biggest mistakes any organisation can make. Having one integrated set of objectives on one piece of paper is such a powerful tool and the process of designing a strategy map tend to yield some of the biggest benefits. This is supported by research with 157 companies conducted by the Wharton School which finds that only 23% of companies consistently built, analysed, and tested causal models. However, the survey also finds that those organisations which used strategic maps had a 2.95% higher ROA and 5.14% higher ROE than companies that didn’t use cause-and-effect models.
- Taking the Balanced Scorecard Template as a Straight Jacket. Even though the Balanced Scorecard provides a four perspective template, I would advice any organisation to ensure that their BSC reflects their strategy rather than to make their strategy fit the BSC template. Feel free to change perspectives round, rename perspectives and add perspectives in order to make it relevant to your organisation. If you want to use different names for perspectives to better reflect language used in your organisation then change the names or if you want to put e.g. two perspectives next to each other to reflect parallel processes or multiple stakeholders then do so. In some organisations is has been beneficial not to call it a Balanced Scorecard because of the fact that there are many different interpretations of what a BSC is and because it can be perceived as just another management fad. Give it a name that makes sense in your context. The only essential requirement is that you end up with an interlinked set of objectives mapped into a cause-and-effect map together with a set of meaningful performance indicators.