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Mistaken approaches to Balanced Scorecard Perspectives for NfP organisations

To really create change and implement strategy in a charity, you need more than a simplistic scorecards.  You have to be thinking modern Balaced Scorecard approach: One that systematically supports strategy and change.   One impediment to their successful application is a failure to understand the  operating (or business) model and convert apply that in the strategy map for the organisation.  Get this wrong and all the other techniques that support strategy change and performance improvement, fall apart.

Over the years we have seen many suggested variations of the perspectives of the balanced scorecard.  Only one works, but we will come to that later.  Lets look at some of the most common solutions and mistakes:

A)   Ignoring the cause and effect relationship across perspectives

A very common and simple approach is to ignore the relationship between perspectives and simply treat the balanced approach as a measure classification exercise.  They take the approach that “If we create balance amongst our measures that would be better”.

However  all this does is to create collections of measures in perspectives.  When this gets excessive you end up with the measure mania and tyranny of targets that you want to avoid.   Don’t even bother going down this route unless you are simply trying to get a grip on what is happening.  If that is the case recognise that you’ll need to progress to a higher level very soon and measure mania will hinder this progress.

B)   Adding extra perspectives

Another common mistake is to argue that the four perspectives need expanding and add further perspectives to accommodate aspects of the organisation.  We have seen all sorts of variations for this.  This fails for two reasons.  They have again ignored and destroyed the cause and effect relationship that drives change and performance.   They often mix up themes of the charity’s strategy with the balanced scorecard’s perspectives.  So they might add a ‘perspective’ called  “Fund raising”

This approach fails to realise that the charity’s strategic theme will cross all the balanced scorecard’s perspectives.  For instance, for the theme “Fund raising”  the income (financial outcomes in the financial perspective) come from satisfying Donor’s needs (captured in the customer perspective) so they give money.  These donor’s needs are satisfied by the activities and actions of the charity (Objectives in the process perspective) which are underpinned by its capability to influence donors (Learning & growth perspective).

C)   Rearranging the perspectives

Once it is realised that the cause and effect relationship is important, but that charities and nor-for profit organisations do not take money from their customers (even though they often do) some practitioners suggest they re-arrange the perspectives of the model.

One popular variation is where the financial perspective is placed below the customer one.  This is, of course, a nonsense because this model suggests that the purpose of the charity is to create funds to give away directly to beneficiaries.  This is very rarely the case.

Another solution is to move the financial perspective below the learning and growth perspective.  This argues that funding is important and therefore underpins the charity’s activities.

Again this model fails.  Funding is important, but the charity has to undertake activities to generate funds from donors and has to manage its costs.  Both of these are outcomes of the charity’s activities.   (In many ways this is identical to commercial organisations, except that funds that are generated are used for the good of a community or beneficiaries, rather than distributed to shareholders).  Anyhow, the funding of an organisation is covered by other mechanisms within the overall Balanced Scorecard approach.  This is described in detail in Jones 2011 (pg …)

So what is the solution, Phil?

The solution is to ensure you capture the operating model of the charity or Nor for profit organisation in the perspectives of the strategy map.   What you need is to be clear where the organisation gets funding, how it controls if expenditure (the consequence of its activities, the needs of its beneficiaries, and the regulatory demands.

Well we call this the “four ball juggle”.  Simply because charities and NFP have to satisfy these four demands at the same time.  Now the trick is to model this in the top half of your strategy map.  When you understand this you can then look at the actual strategies that are being applied to keep each of these balls in the air and capture those on the strategy map.  This is precisely the approach we took with, for example, the Diana, Princess of Wales Memorial Fund.   There was a moment of realisation in the room when the model clicked with how they were thinking.  They realised that each of their very diverse initiatives, all fitted the same model they were using – they were simply at different stages of maturity.

With Dimensions, a £100m organisation,  that looks after people with Learning Disabilities, their  strategy map structure was so logical and helpful that they were being stolen from our desks, initiatives started up beyond the four pilot regions and spontaneous balanced scorecards started breaking out.

If you look at your balanced scorecard and you cannot see your business or operating model, and your strategy, then you should start worrying.  because if you can’t how could your staff and there emerges the danger that the balanced scorecard is sending the charity off in the  wrong direction.

Now the lower half of your strategy map is simple.  It is the same as any commercial organisation.   No need to pretend to place funding underneath (there are simple mechanisms in the approach that handle sources and application of funds).  We do recommend including a values perspective as per our fourth generation balanced scorecard approach.

Want to know more?

If you want to find out more there are several charity and not for profit case studies on our site.  We are also happy to explore with charities where they want to bring about organisational and performance changes, so simply pick up the phone.

Phil