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The question

A recent question on a Linkedin forum was, “Does the BSC need to explicitly consider the financial capital in learning and growth perspective? ”  The questioner followed up with  “Commercial organizations need funds such as equity and debt on an ongoing basis for continued operations and growth. But the learning and growth perspective of BSC does not consider financial capital as another driver for growth along with human, information and organization capital”

So what was my reply?

The question was quite explicit and clear: “Should the balanced scorecard consider financial capital in the learning and growth perspective?”

Let me answer from my experience in four parts:

a) You are quite right to question whether an organisation’s capacity and capability to deliver its strategy is constrained by its access to capital. If it is, and if that involves not simply projects of funding, but improving its ability to access capital, then you might consider such an objectives in the corporate level strategy map.

b) However your question is more generic. Should “THE Balanced scorecard” include access to capital. NO. There is no such thing as “The balanced scorecard, only a framework in which clients put answers to questions about their objectives and their strategy. The objectives on any strategy map (and therefore the scorecard) are derived from questions about the organisation’s strategy, not a predetermined set of objectives. So it may be appropriate to ask about funding issues, but it should not be in every scorecard. I am sure you appreciate that.

c) There is a separate question for the “Customer” perspective about the expectations of shareholders and investors which will/could influence the price of capital and therefore necessitates some objectives in the process and learning and growth perspectives to do with how shareholders and investors, regulators and the markets are perceived. In my experience this is far more common. How do we influence our cost of capital, rather than how do we access it. However I have done work with companies on an acquisition trail and with high growth (eg 40% pa pa for 5 years) and for them managing cash and capital were both important. In both cases they were internally funded.

d) Who would have such an objective? In my experience of over 50 engagements I have come across this as a “Strategic issue” only a handful of times. Obviously many organisations need capital, but it is not always an issue as most have ready access or don’t need extra funding. Normally I find that it cascades into the strategy map for the Finance team “Financial strategy map” where more explicit objectives about investor relations, accessing capital etc are detailed.

Phil