The Meta-Concept behind the Balanced score card is that a set of complex factors add up to success or failure of a Project or Company.
This fact is was made utterly visible by Robert S. Kaplan in his HBS report. He and Norton point out clearly that balanced scorecard management got its strenght and weaknesses.
Usage of the Balanced Scorecard
- Companies may use it as pure “overview” tool. This is the case aslong as no commitment to change was made
- The Balanced Scorecard can also be an integrated company steering and management tool. This requires senior management to buy into virtual values that are also considered in Business Goals and KPIs
Weighing of Measurements: Germany, US and Japan based Companies
A Harvard Business School presented research results about Council on Competitiveness (Porter, 1992) echoed these critiques when it identified the following systematic differences between investments made by US corporations versus those made in Japan and Germany:
- The US system is less supportive of investment overall because of its sensitivity to current returns … combined with corporate goals that stress current stock price over long-term corporate value.
- The US system favors those forms of investment for which returns are most readily measurable. … This explains why the United States underinvests, on average, in intangible assets [N.B., product and process innovation, employee skills, customer satisfaction] where returns are more difficult to measure.
- The US system favors acquisitions, which involve assets that can be easily valued over internal development projects that are more difficult to value. (Porter, 1992, p. 72-73).
Manageing the Unmangeable
Manageing with the balanced score card adds a valueable tool tool that measures the unmeasureable. The most significant challenge is that the production of these immaterial goods require strategic and social values that do not influence ROI and bottomline directly. Typlical examples are
- customer quality metrics, such as on-time delivery, lead time, and customer- measured defects
- manufacturing process metrics, such as yield, part-per-million defect rates, and cycle times
- employee metrics, such as absenteeism and lateness
The Autors of the HBS Article pointed out 2 Interesting Cases
Many companies, however, already had extensive measurements from their existing quality and performance improvement programs and wanted to create a quick Balanced Scorecard by classifying each of their existing metrics into one of the four BSC perspectives. While having a structure for reporting their nonfinancial metrics was better than having no nonfinancial metrics or simply a long list of them, this bottoms-up process of classifying existing measurements was unlikely to capture the most important drivers of future success.
A second group of companies looked externally for their metrics and conducted benchmarking studies to learn the metrics used by the companies they admired most. Norton and I did not want the Balanced Scorecard to become a benchmarking exercise. We knew that even high-performing companies succeeded with strategies that were quite different from each other. The metrics used by a company following a low cost strategy (WalMart, for example) should be distinct from those used by a company implementing a complete customer solutions strategy (e.g., Nordstrom) or a company with an innovative product leadership strategy (e.g., Armani and Ferragamo). Adopting metrics used by a company with a different strategy would confuse and distract the focus of employees and cause the strategy to fail.