Balanced scorecard perspectives require careful thought for an effective solution. Context is often missing: you need to add that external perspective.
Working with a client recently reminded me of the importance of context around a balanced scorecard. This organisation has many regional operations who all doing ostensibly the same thing. However they have different sized regions, different customer mixes, different major consumers, and are at different levels of maturity.
Just looking at the raw figures for the region’s performance will not tell the whole story. It is quite right to look at the context as well as the operation. In fact it would be completely inappropriate to judge the regions without this context.
This is important for knowledge sharing as well. Regions can compare performance and share ideas better if they understand the context in which they are each operating: What might be a good approach or strategy for one region might be completely inappropriate in the context of a different customer mix.
The balanced scorecard perspectives need an external context
Another reason for looking at context and the external perspective is simply the performance of an individual piece of data. If, for instance, detected car crime is rising in a region and is this a good thing or a bad thing. Well if car crime is also rising, but faster, the gap between demand and results is opening up. The police are not keeping up with the rate of increase. If actual car crime is rising by 10% per annum, but police detection is improving by 15% per annum, then the police are getting ahead of the crime wave.
Likewise in a recession or a time when costs are increasing, you may not be able to improve profitability, but improving your profitability more than your competitors suggests that you are actually doing quite well in an industry that is facing a down-turn.
So, in all these cases performance measures must be viewed in the context in which they occur. I would go further. Performance can only be viewed in a context. To try to look at performance in some abstract absolute terms is a mistake and will lead to ill-informed decisions.
Always ask yourself, “what is the context?”. Go further: Add extra pieces of information around your balanced scorecard that reflects the facts and context in which that performance is taking place.
Think of this as the fifth dimension or perspective of your balanced scorecard – one that really acts to balance the measures and results.
Strategy and Performance Specialist