This formula was tested by our clients, and we have had some positive feedback. This formula doesn’t pretend to be a comprehensive source of information, but it will definitely get you on the right track with the Balanced Scorecard. Check out the steps below, try it, and share your experience in the comments.
Additionally, to make the material even more useful, at the end of each of the 5 BSC steps, I have asked strategy execution expert Prof. Jeroen De Flander to share his experiences.
Step n°1 |
Reach an agreement about the terms and their meaning
I often hear something like “we need some good KPIs to build our balanced scorecard.” Statements like these are not only wrong, but dangerous.
Balanced Scorecard and KPI scorecard are not the same:
>Balanced Scorecard (BSC) is about strategy description, execution, strategy maps, business goals, and for sure about some metrics. BSC helps to organize the discussion around strategy and focus your team on “doing the right things.“
>KPIscorecard is a measurement tool. It follows the idea summarized in the saying “what gets measured gets managed,” but actually it is more about measurement, than about management. It teaches you to “do things right,” but it doesn’t tell you a lot about where you need to focus your efforts in order to succeed.
Understand this difference, and make sure your team understand it as well. There are some other terms that might be confusing.
> At Tolko Industries management the Balanced Scorecard is named “How We Will Win” 
> At Tesco they re-branded it as “Steering wheel”
Balanced Scorecard is not the synonym for KPIs set.
Step n°2 |
Understand what results are expected to be achieved
We agreed that BSC is about strategy discussion and execution. How can one say that BSC was implemented and that it was implemented correctly?
> Our main goal (and the sign of the successful BSC implementation) is a cultural shift, when employees start seeing their jobs in the context of the company’s strategy.
In other words, we need to achieve what is called strategy alignment.
Strategy alignment can be achieved by various means
Is BSC the only way to achieve it? No!
You’ll see a lot of companies that have achieved excellence in strategy execution and use many principles similar to the ones that we are discussing here, but they don’t call it a “balanced scorecard.”
Example of thinking in the context of the strategy
I’m sure you have faced a situation when someone is trying to convince you that the company cannot survive without this new thing …, and that it’s a good time to buy, as there is a discount. Here is what you will hear depending on how well your team understands the strategy:
>NO ALIGNMENT WITH STRATEGY: IT Guys: Let’s buy this super-fast server!
>THINKING IN THE CONTEXT OF THE STRATEGY: IT Guys: According to one of the company’s strategic themes we need to achieve excellence in the customer experience online. After researching the topic, we have learned that our current server is fast enough; what people actually need is that our website works well on mobile devices.
Example of the alignment through KPIs
KPIs might help to justify some decisions, as long as they are properly aligned with business goals and strategy.
Have a look at this example for HR that we discussed before:
>STATEMENT SUPPORTED BY INTUITION ONLY: We need to invest more in HR!
>STATEMENT THAT IS SUPPORTED BY THE FACTS: Our profit per employee has increased 12% since we started doing appraisals 4 times a year, so can we roll this out across the board?
On the other hand, using the KPIs only might be confusing. Let’s take turnover indicator for HR and turnover in Apple company for example:
> USING KPIS ONLY TO MAKE A DECISION:Our turnover is higher than the average over the industry… we need to do something about this!
> THINKING IN THE CONTEXT OF THE STRATEGY:Our general turnover is high, but we can afford it. Moreover, this allows us to actively find and keep the best professionals, which is part of our innovation and product leadership strategy.
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