Zen and the Art of the Balanced Scorecard

Zen and the Art of the Balanced Scorecard
By Frank Buytendijk, Vice President and Fellow, Enterprise Performance Management
The balanced scorecard is a
Today the use of balanced scorecards for performance
management concept that can be
management has become a hallmark of a well-run company.
approached in much the same
way as Zen Buddism. Just as the
A recent study by Cranfield University showed that more than
principle that reminds us that the
50 percent of large enterprises use some type of a balanced
journey is the destination,
performance management should
scorecard. The concept is simple. In order for your business
be a continuous process.
to succeed, you need a way to consider the factors that
influence the organization’s overall performance.

But simplicity can be elusive. The balanced scorecard is a management concept that has been so

thoroughly boiled down to its essence that it no longer provides much application guidance. As a result,
many of the best practices of the balanced scorecard are widely misunderstood. As much an art as a

science, the balanced scorecard is a living process that must be adaptive to constantly changing external

forces and internal course corrections. You learn as you go. Below are a few guiding principles that will
help you along the way.


1. Capture a Balanced View
The four perspectives of a
The balanced scorecard enables companies to consider factors that influence performance in a
balanced scorecard serve as a
manageable way. Typically, scorecards measure progress across four key areas:
good generic framework for most
• Financial Perspective: How are we perceived by the shareholders?
organizations. But don’t feel
limited by them.
• Customer Perspective: How do our customers view us?

• Internal Process Perspective: How effective and efficient are our processes?

• Learning & Growth Perspective: How agile are we?

While most companies find these four perspectives to be sufficient and logical, there’s no rule that says
you can’t have more or different perspectives. Some companies feel their scorecards should specifically

address corporate social responsibility, so they have introduced a fifth dimension called “environmental

perspective” or ‘societal perspective.” Others add a perspective for suppliers and partners to cover this
important constituency. Not-for-profit organizations often flip the relationship between the customer

and financial perspectives, as the financials are a means to a non-financial goal. The four perspectives

are a good generic framework that fits most organizations. Just don’t feel limited by them.

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Zen and the Art of the Balanced Scorecard



2. Pinpoint the Right Number of Metrics
Many companies treat the balanced scorecard as a box-checking exercise, running down a laundry list

of metrics that don’t really offer much new insight. Or worse, they stubbornly stick to the rule of

thumb of 15 or 20 metrics per scorecard. I’ve even witnessed organizations trying to “fill up” their
under-populated innovation perspective with metrics from an overloaded customer or process

perspective.

In determining the right metrics-and the right number of metrics-for your scorecard, it’s not necessarily

bad to start with an abundance of possibilities. You can’t converge before you diverge. Working with

the scorecard over time will help you identify the best business drivers for your organization and bring
the number of indicators down to a suitable level.


3. Use Cascading Scorecards
Scorecards don’t necessarily need
In order to create alignment, scorecards should cascade into the organization, sometimes even down to
to reflect the organizational
the personal scorecard level. A common misconception is that scorecards must reflect the
structure to create alignment.
organizational structure, but this isn’t necessarily so. Organizational alignment is not always achieved by
giving every department its own scorecard. By simply stacking scorecards according to the corporate

hierarchy, companies can miss important drivers of performance.

Take project scorecards, for example, that point out which innovative approach is used, whether the

project is on track, how intermediate results are being viewed by internal clients, and how much money
the project has saved or generated already. Projects represent a large part of an organization’s activities

and performance, but are not generally reflected in the organizational chart. Or consider customer

contact channel scorecards which describe the unique characteristics of retail shops, the call center and
the catalog. Channels aren’t typically reflected in the organizational chart, but they are a crucial part of

business performance given their focus on customer interactions. And what about the many successful

supplier scorecards that help rationalize the number of suppliers with which an organization works.
These scorecards fall outside of the organizational structure completely and yet they play a key role in

elevating supplier relationships to a more strategic level.

4. Align with Strategy Maps

A strategy map describes how the performance indicators in a scorecard relate to each other, identifying
Strategy maps are instruments to
cause-and-effect relationships. Statistically cross-checking these relationships is a good exercise-but
enable communication and
don’t go overboard. Quantitatively-oriented organizations tend to want to not only identify a
collaboration.
relationship between indicators, but to model the impact and sensitivity and, if possible, even simulate
results.
Strategy maps are not a predictive mechanism. A typical strategy map reasons that if you train staff well,
they will run efficient processes, which will make customers happy, which will lead to a healthy bottom
line. But in reality, relationships are not uni-directional, and the logic can be applied the other way
around: Healthy financial results will provide a positive corporate image, which will attract new
customers, allowing the organization to invest in new processes and attract and retain talented staff.
These relationships are also not linear. If a process is broken and customer satisfaction decreases,
people need to be assigned to fix that process, which probably means taking their eye off the customer.
Customer satisfaction may suffer temporarily, before it improves long-term. Keep in mind that strategy
maps are an instrument to enable communication and collaboration more than an instrument of
control.


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Zen and the Art of the Balanced Scorecard


5. Incorporate Qualitative Insights

True insight into performance comes when we complement raw data with qualitative information. It’s

easy to get caught up in assigning numbers to everything. Particularly in the field of analytical Customer

Relationship Management, organizations tend to go overboard with quantitative analysis. This may lead
to a deep understanding of the numbers, but not necessarily of people’s behavior. Some areas-such as

customer satisfaction or supplier relationships-are better understood through qualitative analysis.

Consider the insights contained in 20 customer interviews. Although not statistically significant, the

information gathered would likely provide a very clear and informative picture of how the organization
is viewed by customers. I recently heard an example of a company that does qualitative analysis of

supplier relationships. Periodically, both the procurement officer and the supplier rate their relationship

on a scale from one to ten. Further qualitative analysis is performed when the two ratings are too far

apart. Interviews and other qualitative data collection provide much richer content around metrics. And
don’t forget to simply stop and ask people if they are still satisfied.


6. Plan for the Unplanned
It’s short-sighted to assume that everything will go according to plan. There will always be surprises

that surface along the way-such as regulatory changes, the introduction of new competitive

technologies, or sudden shifts in global economic conditions. Any number of factors can invalidate an
existing strategy. Organizations should link their key performance indicators with key risk indicators-

essentially linking Enterprise Performance Management with Enterprise Risk Management initiatives.

This kind of upfront thinking about what could go wrong-and how to respond-improves a company’s

reaction time.
A good balanced scorecard is a
More importantly, the resulting conversations regarding the possible downside of some initiatives can
process that adapts to constantly
significantly raise the level of strategic discourse. Organizations that are willing to discuss and plan for
changing external forces-planned
possibly unpopular outcomes demonstrate discipline and are more likely to succeed. And a good
and unplanned-as well as internal
balanced scorecard is a living process that adapts to constantly changing external forces-planned and
course corrections, so companies
unplanned-as well as internal course corrections, so companies can learn along the way.
can learn along the way.
7. Make Time for Reflection
Most scorecards are deployed as a control mechanism and too often companies let the numbers speak
for themselves. The most important goal of a scorecard is to spark a discussion-and ultimately to help
set the management agenda. Even the most hard-boiled numbers are based on strategic assumptions of
what is good and bad. A smart scorecard presents you with important business dilemmas to ponder.
These dilemmas require reflection and discussion, and confronting the true dilemma in a business issue
is a sign that you really understand the problem before rushing to a solution.
In the practice of Zen Buddhism, the true master is able to discover the few key elements that drive all
variables and bring them back to their purest form. The same goes with performance management.
There are no quick fixes, if you want to do it right. Remember, the journey is the destination. And it’s
your journey. Copying best practices is a starting point, at best. But when you are able to make
performance management a continuous process instead of a periodic exercise run by finance, you will
see every day as an opportunity for new enlightenment




Copyright © 2008 Oracle. All rights reserved. Oracle is a registered trademark of Oracle Corporation and/or its affiliates. Other names may be trademarks of their respective owners.

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Zen and the Art of the Balanced Scorecard


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Copyright © 2008 Oracle. All rights reserved. Oracle is a registered trademark of Oracle Corporation and/or its affiliates. Other names may be trademarks of their respective owners.

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