Beyond the “Balanced” Scorecard:
How an “Un-Balanced” View of Performance Could Dramatically
Increase Your Ability to Execute

by Dr. Dan Roller

“I’d like a Balanced Scorecard, please.”

“Would you like strategy mapping and business analytics with that?

“Yes, please!”

“Would you like that supersized?”

Many organizations “order” a Balanced Scorecard regardless of their specific business need(s), thinking that the need is actually for a Balanced Scorecard.  It is not.  Any organization asking for a Balanced Scorecard is actually asking for help in one area of strategy execution or another and has jumped to the conclusion that a Balanced Scorecard is the answer.  This jumping puts the cart well before the horse – the conversation should start with the need, not the scorecard.  Organizational needs can include things like: promoting a common understanding of strategic priorities, supporting a critical learning agenda, making clear how optimization should be viewed in the light of value to the organization, or providing stakeholders with a message that provides a clearer picture of their ROI.  Once these needs are determined, then, and only then is it reasonable to ask what type of scorecard, if any, could best help the organization address these needs and realize its vision, mission and strategy.

When an organization “orders” a Balanced Scorecard before clearly identifying its needs around strategy execution, they assume that a Balanced Scorecard can generically meet virtually all of their needs.  But what if your organization’s needs run counter to the types of benefits typically realized in a Balanced Scorecard implementation?  For example:

  • What if you need to develop a myopic focus on two or three things that are most critical to your company’s strategy?  (A Balanced Scorecard approach typically drives toward a comprehensive view of all the important elements of a company’s strategy.)

  • What if a balanced view of performance obscures your shareholders’ view and understanding of where you are placing your bets and making strategic trade-offs?

  • What if your scorecard needs to help enable the most effective and efficient use of limited resources to drive strategy execution?  (A Balanced Scorecard doesn’t even consider this.)

While advocates of a Balanced Scorecard approach might say that all of the above can be effectively addressed through the design and implementation of a Balanced Scorecard, it is interesting to contemplate the alternatives to scorecard design that might be even more effective in addressing these types of needs.  This article will introduce some of the many alternatives available to organizations that want to consider the benefits of a view of performance that is not at all focused on balance.

An Un-Balanced View of Performance

When Kaplan and Norton first developed the Balanced Scorecard, companies measured and reported performance almost solely based on their financials.  While the balance sheet remains a key component for understanding performance -- as Kaplan and Norton, and others before them, pointed out – this data is historical or lagging; it says nothing about where the company is going, only where it has been.

The Balanced Scorecard process has helped broaden the conversation around performance to include financials and operational measures across customer, internal processes and learning and growth perspectives.  Measures specific to these three non-financial perspectives provide a picture of what future performance might look like for the company, i.e., leading indicators of success.

The “Balance” in the Balanced Scorecard comes from Kaplan and Norton’s suggestion that an organization’s measures should be fairly evenly distributed across all four perspectives (financial, customer, internal processes, and learning and growth).  Norton suggested that the distribution might look something like this:


Human beings tend to gravitate towards the notion that balance is better than a lack of balance.  How many of us even evaluate the quality of our lives based, at least in part, on the notion that quality equals balance?  So it is easy to understand why so many of us buy into the notion that all organizations, no matter what strategy, size, industry, or makeup, should strive for “balance” in their scorecards.

Yet, there are contradictions to this notion all around us.  When we need knee surgery, we don’t seek someone with a balance of skills and expertise, we want the specialist who focuses on repairing knees.  In fact, most exceptional performers in all endeavors have a narrow and specific focus, not a balanced one.  So while balance has an intuitive appeal, an un-balanced and narrow focus on measuring performance has a place in the discussion as well.

While there is credible information to support the notion that companies need financial and non-financial measures, or lagging and leading measures, there simply isn’t any compelling data proving that measures balanced across four perspectives drive higher levels of performance than measures that are un-balanced across only two or three.  In fact, there is evidence that in some cases a Balanced Scorecard can dilute an organization’s strategic focus, impairing its ability to execute. 

The Un-Balanced Scorecard is the “alter-ego” of the Balanced Scorecard – a point at the opposite end of a spectrum between balanced and un-balanced views of performance.   Where a Balanced Scorecard approach asks: What are all of the important elements of your strategy?  The Un-Balanced Scorecard approach asks: What are the few most critical elements of your strategy?  This myopic view of performance generates benefits that a Balanced Scorecard cannot duplicate.  For example, the Un-Balanced Scorecard approach enables companies: to prioritize and address the areas of performance that must be optimized in the short term; to deploy key resources to initiatives and projects that are most critical to strategic success; and to effectively use measures to explain to shareholders, stakeholders, leaders and employees where the company is placing its strategic bets and making trade-offs.


Comparing Key Characteristics of the Balanced and Un-Balanced Scorecards

 

Balanced Scorecard

  • Tracks all of the important elements of a company’s strategy.

  • Provides a comprehensive view of performance across four perspectives.

  • Promotes a balanced and longer-term view of optimization that helps executives see how performance in several areas impacts the performance of other areas across multiple perspectives.

  • Ensures that key resources are linked to elements of a company’s strategy.



  • Promotes communications that help executives, employees, stakeholders and shareholders see that all bases are being covered.

Un-Balanced Scorecard

  • Tracks the few critically important elements of a company’s strategy.

  • Provides a myopically focused view of performance.

  • Promotes a focused and short-term view of optimization that helps executives see how performance in critical areas impacts the performance of other critical areas.

                  
  • Ensures that key resources are efficiently and effectively deployed to support the most critically important elements of a company’s strategy.

  • Promotes focused communication so that executives, employees, stakeholders and shareholders can clearly see where the organization is placing its bets. 

 

Balanced and Un-Balanced Views of Performance

Both Balanced Scorecard and Un-Balanced Scorecard approaches promote focus, but to different degrees.  For example, the Balanced Scorecard approach does help companies focus on a smaller number of 23 to 25 measures.  This number of measures is driven, at least in part, by the need to understand performance across the Balanced Scorecard’s four perspectives: financial, customer, internal processes, and learning and growth.  The Un-Balanced Scorecard approach has no need to populate four perspectives on performance.  Rather, the identification of performance measures is based solely on the organization’s specific needs.  This allows an Un-Balanced Scorecard to achieve even greater levels of simplicity and focus.  So, if a company needs to drive higher levels of customer intimacy and wants an un-balanced view of performance, focusing on the customer and little else – so be it.

Both the Balanced Scorecard and Un-Balanced Scorecard approaches promote identifying measures that help organizations better understand when and where key areas of performance are, or are not, being optimized.  Optimization is basically a story of relationships between elements of a company’s strategy.   For example, a personal electronics company might know that it is most successful building a loyal customer base when they introduce two to three new and innovative add-ons to their most popular products in six-month intervals.  So optimization, in part, is defined by this relationship.  If product add-ons fall below two to three per six-month period, or aren’t perceived as new and innovative, the customer base could erode.  So measuring optimization, in this case, would include tracking the size and stability of the customer base and the introduction and timing of product add-ons.

From a Balanced Scorecard perspective, the measures used to better understand optimization are defined across all elements and perspectives of the scorecard.  As a result of the process, leaders have multiple views of optimization involving multiple combinations of elements and relationships.

The Un-Balanced Scorecard approach also defines measures and relationships that help organizations better understand and evaluate optimization, but because there are no predefined perspectives, the outcome is much more targeted and much more aligned to the organization’s needs.  A Balanced Scorecard critique of this process would surely point out that there is a danger in defining measures according to such a narrow focus because key opportunities for better optimization could be missed.  While this risk is important to consider, there also is a risk in measuring so many elements and relationships that the organization loses interest or, even worse, gets overwhelmed by volume and complexity. 

Advocates of the Balanced Scorecard approach often fail to appreciate that an even simpler, more focused approach to scorecard development and optimization could be in many organizations’ best interest.  Some organizations need a laser-like focus on cash-flow.  For those selling a commodity, optimization is all about the price and availability of raw materials and the efficiencies required to bring the product to market at a competitive price. For some innovation is key, and the list goes on.  When compared to the Balanced Scorecard, the Un-Balanced Scorecard approach promotes creating a focus on optimization that is relatively myopic in its view, allowing organizations to pick and choose where to focus their optimization efforts in the short term.  (See Case Example: Small Software Company)

 

Case Example:  Small Software Company

We recently worked with a software company that had a Balanced Scorecard and a strategy map that identified at least ten different opportunities for optimization.  R&D, Distribution, Web Performance Management, Sales Effectiveness, and other opportunities were all perceived as mission critical.  While all of these opportunities were potentially important, the company was learning that it simply couldn’t afford to go after them all. 

Figure A – Small Software Company’s Balanced Scorecard


Over the past three years, this company had watched its selling cycle times balloon, so that the time it took to transform a qualified lead into a closed sale was two to three years or more.  Getting customers to the end of this cycle sooner was absolutely critical to the company’s future success.  Also critical was having a better understanding of which customer segments had the greatest potential to buy and buy sooner. 
The company’s leaders were also learning that having industry-specific references was one of the most important factors involved in increasing sales and shortening cycle times.  To get these references, the company knew that it was critical to stay connected with the client after the sale to ensure that the value of the software implementation was optimized for the client.

So this company recognized that the most important thing they could do to realize their revenue targets was shorten sales cycles (Sales Effectiveness).  There were three things they knew from experience that had cause-and-effect relationships on these cycles: identifying customers who were more likely to buy and buy sooner (Customer Segmentation); establishing longer, more enduring customer relationships (CRM); and developing industry-specific client references (Customer References).  The other aspects of their execution plan literally paled in importance next to these three.

Figure B – Small Software Company’s Un-Balanced Scorecard


This Un-Balanced view of performance helped the company create a focus on optimization that was much more manageable and, therefore, achievable.  Several things were taken off the table.  This did not mean, however, that things like R&D were being ignored.  Instead, it was simply made a lower priority so that the company could disproportionately focus its limited resources on an area that needed higher levels of optimization in the short term.

Both the Balanced and Un-Balanced Scorecards enable the more strategic deployment of key resources.  The Balanced Scorecard process provides a view of all of the organization’s strategic priorities, allowing leaders to deploy key resources accordingly.  This might be the perfect solution for organizations that have a wealth of resources to deploy.

Because of its more myopic view, the Un-Balanced Scorecard adds even greater clarity to the picture.  Because the focus is on priorities, regardless of balance, a different and much more targeted view emerges around where key resources need to be deployed in the short term.  Organizations that have limited resources may benefit from focusing these resources on executing the few most critical elements of their strategy, so the Un-Balanced Scorecard process could be more beneficial.  This was the case with the Small Software Company described in the case example in the sidebar.  When we first worked with them, they had key resources running in multiple directions, diluting their effectiveness in the areas that really needed attention.  Because of their size, they really couldn’t afford to give all potentially important activities the same level of attention. Instead, they needed a myopic focus on those elements that were most critical to strategic success.

Both Balanced and Un-Balanced Scorecards are powerful communication tools – and both tell very different stories.  The Balanced Scorecard, when viewed by executives, employees, shareholders and stakeholders, tells a comprehensive and balanced story of how the company intends to achieve strategic success.  It provides both a short-term and longer-term view of execution.  It provides a picture of activities and measures across four perspectives: financial, customer, internal process, and learning and growth.  The downside to this story is that it can be hard to pinpoint where the company is placing its bets and making trade-offs.  Sometimes that is exactly why executives like this view.  And why not?  This view says, “we have all of our bases covered, all of the pieces of the puzzle are in place.”

The Un-Balanced Scorecard, when viewed by executives, employees, shareholders and stakeholders, tells a myopic and un-balanced story of how an organization intends to achieve strategic success.  It screams, ”this is our bet, these are the trade-offs, this is our very limited set of priorities.”

Which of these stories will better communicate our approach to strategic success?  Which type of story will generate the behaviors we need from our employees?  Which story will convey to shareholders that we have the right recipe for success?  These are the types of questions that can help you evaluate your scorecard from a “story” point of view.  Make no mistake, this is one of the most important issues in scorecard development. A scorecard has to convey a story leaders believe in and want to talk about -- and then talk about some more.  It has to be simple and clear so that it helps generate alignment and coordinate efforts across the organization. 

The reason for unveiling an Un-Balanced Scorecard isn’t to give you two options, but rather to encourage you to explore the many “need-based” options for scorecard design that lie between balanced and un-balanced.  When the organization’s need is central, instead of balance, a number of valid scorecard options can emerge.  See Exhibit 1 for examples of how three organizations let their needs drive the design of their scorecards.


Exhibit 1
The                                        Scorecard.  Before you ask for a Balanced Scorecard, you might want to fill in the blank with other scorecard needs that may be even more important than “Balance.”  Here are some real case studies.

1. The “Common Understanding of Performance” Scorecard
We recently worked with a leadership group on a strategic planning initiative in a large financial services company where we asked a simple question.  “To win in the marketplace, what should be your primary focus in the next two years: Low cost, product innovation, or great customer service?”  Do you think we got one answer?

We actually got all three answers.  Most organizations know that winning in the marketplace is all about focus.  Ultimately, this was a company that competed for customers based on premium service.  So the need for this group was to develop a scorecard -- balanced, un-balanced or other -- that helped achieve the desired leadership focus and alignment around developing and delivering premium customer service.

In this case, we developed a scorecard using a balanced scorecard “framework,” because of its familiarity to the client.  But the scorecard was definitely un-balanced on the Customer and Internal Operations perspectives to drive home the need to align and focus on defining and delivering the level of services most appreciated by a demanding customer base.

2. The “Value Optimization” Scorecard
We recently worked with a large Customer Service Organization that had set up its scorecard metrics without first defining optimization.   Some of the metrics were mapped across dimensions of a Balanced Scorecard, but none of the metrics told the story of the value that was optimized.

Defining optimization is often the most critical need to address in scorecard development.  Optimization means that you are delivering the best possible levels of value to the organization.  It is this “best possible” standard that helps define optimization because optimization is invariably a conversation about benefits, risks, compromises and trade-offs.

Optimization is defined by strategy.  So, for example, this organization had a strategy that focused on delivering service to customers in the most cost-effective manner.  Optimization, in this case, meant that the level of service being delivered was the lowest possible level of customer service (to lower service costs ) while not crossing the threshold of what customers believed was minimally acceptable service so they wouldn’t defect (to avoid additional customer acquisition costs).  Achieving the right balance between cost and service is what allowed this organization deliver the best possible value to the company overall.

In this case, we developed an Un-Balanced Scorecard that was built around this most important driver of value.  The perspectives for this scorecard – costs, return on costs, service levels, and customer satisfaction/defections -- helped the organization develop a focus on service delivery that maximized value.

3. The “What Stakeholders Need To Hear” Scorecard
We recently worked with a large Operations Organization at a Fortune 100 company on developing scorecard metrics.  A typical starting point for this type of engagement is to review the scorecard(s) and metrics currently in use.  As is the case with many leaders, their primary focus was on ROI, and, as is the case with many operations, and other functions considered overhead, the “R” can appear puny, or non-existent, and the “I” can easily be perceived as the dominant player in the mix.  So stakeholders continually looked at Operations as a place to cut costs, year after year after year.  This perception was only reinforced by the scorecard metrics in use.

This is where Kaplan and Norton might rightly advise them to add balance, but what kind of balance?  Add customer, internal process, and learning and growth perspectives and we’ve got it licked. Right?   
What the client determined was that the most important outcome of a scorecard was to help shape the perceptions of key stakeholders around the value Operations generates for the cost or investment made.  In starting with this perspective, we realized that one of the most compelling stories around value wasn’t a balanced story at all.  The “R” in ROI had to be pumped way up.

So, before we could balance the perceptions of the “Investment” with the “Return,” we first had to look at two things. 

  • The types of “Returns” stakeholders appreciated and possibly expected to see from Operations.
  • The actual “Returns” being generated by Operations that could possibly address these expectations.

Using this information as our focus, we built a great scorecard that was purposefully unbalanced towards the return side of the financial perspective.

So before you balance your scorecard, you may want to ask what story you would want to tell about your organization to drive home the value or return generated for stakeholders.

Meeting Different Needs

So, what types of needs are best addressed through the use of a Balanced Scorecard?  If you are an organization with the following types of needs, a Balanced Scorecard might help.

  • The need to more effectively identify and track a more comprehensive portfolio of strategy execution activities.
  • The need to increase levels of accountability across the entire menu of strategic activities. 
  • The need to better understand optimization across several functions or perspectives.
  • The need to ensure that key resources are linked to strategic initiatives and activities.
  • The need to communicate a thorough approach to strategy execution to key stakeholders.

But, not every organization has the types of execution needs best served by a scorecard that is comprehensive and balanced.  What types of needs are best addressed through the use of an Un-Balanced Scorecard?  If you are an organization with the following types of needs, an Un-Balanced Scorecard might help.

  • The need to identify and track a specific and limited portfolio of strategy execution activities.
  • The need to focus all or part of your organization on a few specific strategic activities for which everyone is accountable.
  • The need to focus optimization efforts on a few critical areas that are most essential to effective strategy execution in the short term.
  • The need to ensure that limited and key resources are most efficiently and effectively deployed to support the few most critical elements of a company’s strategy.
  • The need to communicate a story that clearly conveys where the organization is placing its bets.
Conclusion

Over the past decade the Balanced Scorecard has gotten considerable “air time,” so much so that most organizations haven’t considered the potential benefits of an un-balanced view of performance.  An un-balanced view of performance is one that considers other factors to be equally important as balance.  In other words, the number or spread of measures across a limited number of perspectives is not all-important.  In fact, other factors having nothing to do with balance may be far more important to consider when developing a scorecard.

What may be more important is that a scorecard promotes a common understanding of strategic priorities, identifies a critical learning agenda, makes clear how optimization should be viewed in the light of value to the organization, or provides stakeholders with a message offering a clearer picture of their ROI.  Scorecards that support these kinds of objectives could be either balanced or un-balanced.  The point is that balanced vs. un-balanced should never be the driving factor in developing scorecards.  In fact, the design of all scorecards should instead be driven by an organization’s specific needs around strategy execution, period.

So, if you are thinking about “ordering” a Balanced Scorecard, think again, or rather, think first of your organization’s specific needs around strategy execution.  Once these needs are clear, ask what type of scorecard will best help you address these needs and best facilitate the effective execution of your organization’s vision, mission, and strategy.  And when you complete your scorecard, don’t ask if it is balanced or even un-balanced.  Rather, take a step back and ask, ”does this help our organization meet our needs?”  If the answer to this question is “yes,” you will have a powerful tool to drive execution. 


Dan Roller has over 20 years of experience enhancing the performance of organizations in a variety of industries. His experience includes consulting in Government, Insurance, Financial Services, Health Services, Human Resources, Business Operations and Strategy.  He is currently a Manager with Diamond Management and Technology Consultants. Contact him at dan.roller@diamondconsultants.com .

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Copyright 2007 by Dan Roller. All rights reserved.

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