In-Depth

The Balanced Scorecard: An Untested Hypothesis

There’s a problem with scorecarding, balanced or otherwise: No one knows if it actually works.

• By Stephen Swoyer
• 09/29/2004

The success of balanced scorecarding is unquestioned, such that most BI vendors—and even Microsoft Corp.—currently ship analytic solutions based on the approach. But one prominent consultancy says there’s a problem with scorecarding, balanced or otherwise: No one knows if it actually works.

To be sure, says Martin McCann, a research director in performance management with Ventana Research, the balanced scorecard—which is based on the principles of a top-to-bottom performance management process—is a significant improvement over earlier methodologies. “But after more than 10 years of phenomenal adoption in the industry, few organizations are able to demonstrate the expected levels of performance improvement or integration with traditional management disciplines, such as budgeting, that govern alignment of resources with strategy and implementation of strategy,” he notes.

If the balanced scorecard is such a good method for managing performance, McCan asks, why are so few adopters achieving ROI?

One reason, he speculates, is that the scorecarding methodology is quite different from the usual methods employed by managers who make their decisions on the basis of large volumes of raw operational information considered in tandem with financial data and controls.

“The introduction of a strategy model that constrains the volume of information used to make performance improving decisions in the scorecard is both a good concept and counter-intuitive to this scenario,” he points out, noting that managers have over time honed their analysis skills to help them manage performance. “While this may initially be an easier solution for experienced industry managers to continue using locally, the lack of a common performance vocabulary that then exists across the organization results in the most significant performance-enhancing opportunities going undiscovered.”

Another reason, says McCann, is that too few organizations anticipate the scope of the changes they must make to realize large-scale improvements in performance management. For example, he argues, “existing reporting, planning, and resource-allocation processes must be re-engineered to support the more holistic performance paradigm of the scorecard otherwise these processes become barriers to success.” What’s more, organizations must work to ensure that other behaviors—such as ingrained project or programmatic management strategies, or organizational politics—don’t form barriers to successful implementations.

BI and ERP vendors deserve some of the blame, too, McCann argues. “Playing to their strengths, BI and ERP vendors like SAP and Hyperion marketed the importance of dashboards and reporting capabilities with success,” he notes. “While these software features are important to scale the completed system, they have served to divert attention and resources away from the critical internal issues already discussed.”

McCann’s prescription, of course, is a simple one: Organizations need to retrain—or “tease”—managers away from supplemental decision support information systems that exist in parallel to the scorecard. Managers, on the other hand, need to focus on validating the links between different parts of the scorecarding model to better understand how the information interconnects.