The key variable in actively using a Balanced Scorecard is always the attitude and culture of the organizations, the leadership traits of executives and decision makers.
It provides the business management a holistic view about the progress of business performance, a prediction tool to optimize the actions of the management, a prioritization tool to focus on the most critical issues, and a facilitation tool to enforce information-based communication.
Prediction tool: A balanced scorecard is a management tool to predict and respond to the emergent business properties and make information more “visible” for shareholders, assess the progress to strategic goals, and it offers a way for a corporation to gain a wider perspective on its strategic decisions about future performance of the business. So the management can become more confident and accurately judge the coming curves and obstacles on the path.
Effecting change requires fast and regular feedback and makes the desired behaviors instinctive. A scorecard with well defined performance indicators should contain a good mix of outcome measures for evaluating the long-term strategic value along with performance drivers to track the progress in the short term (operational value) in spite of capturing multiple perspectives. A well-defined scorecard helps the management take optimization actions, recommend modifications to strategy, given a finite set of resources, based on learning from predictions, or performance measurements, etc.
Prioritization tool: It is too easy to be swamped by reports and performance indicators. The scorecard allows you to focus on the most critical issues, and put all things in context. Key Performance Indicators and the associated metrics drive priorities and behaviors. Keep them focused on drivers of performance, and appropriately weighted. The management needs to validate the following - did you achieve the cost/benefits, were your scorecards accurate and did you achieve the expected contribution to strategy? Without scorecards, it will become like searching for a needle in the haystack.
“Think big and start small.” It is better to start with a small structure that answers to your very first strategic questions and then evolve the scorecard into a more complex, accurate and specific environment, selecting, scoping, and aligning specific projects to overall strategic objectives and the budget, and keeping the priorities in balance. Balanced scorecards have their place, but you need to combine with traditional estimation on cost/benefit and to add the third dimension which connects the projects to the strategies they contribute to, etc. A project that seems less than exciting when evaluated on its own may actually be a great choice for the organization because it provides more support for lots of objectives and significantly improves business performance.
Communication facilitation tool: With unprecedented hyper-connectivity and interdependence, companies that have issues with cross functional communication and collaboration will gradually become irrelevant. A balanced scorecard is very useful for facilitating discussions and ensuring decision makers understand the various trade-offs and make the overall strategic balance. Scorecards should have pre-built key performance indicators that reflect best practice measurement areas across the business management holistically. It reveals business dependencies, and constraints between components, individuals, and overall risk exposure. The key variable in actively using a Balanced Scorecard is always the attitude and culture of the organizations, the leadership traits of executives and decision makers.
To keep the team motivated, it’s important to open digital dialogs for enforcing communication and encouraging cross-functional collaboration. In fact, effective communication and the ability to build strong relationships are vital elements to business success. Usually communication gaps are caused by cognitive difference, misinformation, ambiguous process, or management bottleneck. A well defined scoreboard helps to facilitate the strategic communications within the business executives, to highlight changes with standardization, coherence, and visualization of business improvement initiatives. In building an effective scoreboard, communication is also critical, you develop a logical structure that helps everyone know what should be measured, what belongs on the scorecard and what does not belong.
Digital transformation is a long journey, it is important to leverage informative scoreboard for making effective decisions, prioritization, and fortifying cross-functional coordination based on information, expertise, and responsibility. But keep in mind, balanced scorecards tend to be more successful in simple cookie-cutter commercial enterprises where there are a number of similar functions that share common metrics and targets, but they have much less utility in terms of real strategy when it comes to overly complex organizations. So it’s a useful tool, but not a panacea.
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