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Environmental balanced scorecards – “Can’t I simply add an environmental perspective?”  A better solution to this simplistic approach, that captures your environmental strategy.

Note this is an old article – if you have landed here, it will be useful, but I recommend you look at my paper, “Designing an Environmental Balanced Scorecard

Background:

On a forum, someone suggested you can simply add an environmental perspective to a scorecard to handle environmental issues. This is a simplistic and ineffective approach. This article sets out that person’s argument and explains why it does not work. What you really have is environmental strategy themes crossing all your perspectives.

I was in conversation on a performance management forum and wanted to vent my spleen a bit. The discussion was, the “Balanced Scorecard needs another perspective in addition to financial, customer, process and learning and growth to represent the environment.”

I argued that you could put any environmental measure for an organisation within this framework as a theme and not destroy its structure.

The argument building environmental pieces in an Kaplan & Norton balanced scorecard

The person the forum argued that

“I know you were being illustrative in your answer, but your reply does not address the significance of something like Kyoto and its impact on management reporting. In my opinion everyone who has an interest in PM should beware specifically of chapter 40 of that agreement which sets out some national level PI’s related to the environment and sustainability. As I see it, the key point about Chapter 40 is that the PI’s are defined for use at Government level, and Government will pass the necessary measures into law that will force organizations, profit and none profit, into reporting on them. Indeed Chapter 40 effectively demands such reporting be placed on the statute book of signatory nations with much the same level of precedence as financial reporting. The UK Government and other signatories have already implemented a number of measures as a direct result of Kyoto. Other Governments are doing the same kind of thing. Search for “Sustainability Report” on Google, and the first entry (I found ) links to a Canadian government site, a home page graphic of which clearly states “measuring sustainability”

He continued, “I am not at all sure that sustainability reporting, as a global issue, fits into K&N’s scorecard model, which is ultimately profit driven, as it seems to me that sustainability is more about managing something that has a more general social impact (although I accept entirely that profits will be affected and therefore can be linked in the classic K&N sense). That aside, given the level of effort being focused on activities related to such reports on matters, it seems to me that it is legitimate, if only on a practical data management basis, to have” Environment” as a fifth perspective.”

My reply:  This is how you build environmental strategy and themes into your balanced scorecard

So I replied:  “OK, thanks for the detail – must admit I spent 30 seconds making up that model with 4 perspectives. So, having read your more detailed description,for which I thank you, I would like to emphasize three points and demonstrate them with an example based upon what you have written”.

  1. Being systematic, what is the system we are referring to? It is the corporate that is in the context of government legislation. The system boundary is the corporate. Customers, suppliers and the government are outside it. So are the lawyers. (We can do the strategy map for government late if you get them to pay me lots of money)
  2. What you are describing is Just a Theme across the perspectives. In fact I spot 5 potential themes here – all of which illustrate that the perspectives apply . Along side this companies themes of making some sales, managing costs, complying with health and safely and possibly another 5 themes to do with the environment. They might have an interest in
    1. Monitoring the legislation to ensure they comply
    2. Complying with the legislation
    3. Innovate around how they comply with the legislation
    4. Report statutory compliance
    5. Use PR to influence their customers and investors.

PS having worked with environmental specialists in a water utility I have made this work in practice – I am not making this up. Now let’s look at the perspectives:

So now, let us look at each of the perspectives for an environmental component

Financial:

Well, there is the cost of compliance (i & ii), the cost of innovation (iii), the potential cost/risk of non-compliance (iv) and the value of improved cost of capital as well as the social costs of environmental failure/improvement (Just simply think triple line accounting here – it works fine)

Customers:

There seem to be at least  groups of external stakeholders that are interested in teh environmental impact. So I would segment the customer perspective.  These are:

  • Actual customers that give money – real customers!
  • People in the community potentially affected by who might incur the social cost
  • Legislators/Government – who want you to comply or pay up
  • Investors – who might be influenced to lower the cost of capital

Processes – and their potential L&G pieces

Well that is trivial from the themes now (you see clever design of the themes means that these things just fall out)

  • One for monitoring legislation – you will need the skills and contacts to do that (L&G)
  • One for compliance (and the cultural piece of embedding environmental thinking in the activities of production/maintenance (L&G)
  • One for Innovation/R&D – though you could add more depending on the detail you want – and or course developing the environmental or R&D skills (L&G)
  • One effective reporting – I put it here to distinguish it from the compliance – again audit skills or something (bear with me I make this up to illustrate the story)One for PR – you get the picture and can work it out yourselves…

As you can see, they are JUST THEMES of the strategy. I may not have perfect content, as they are illustration – the important thing is we are using these to tease out the underlying structure and system. They lie vertically across the four perspective quite comfortably and don’t need another perspective, as you can see.

Reading this strategy, someone out there will be wondering whether this is just compliance or how you differentiate yourself and at which level in the hierarchy of corporate scorecard this lot applies.The answer is on about selecting levers of control in an organisation – is this about compliance, reporting what we have to do, differentiating ourselves or a core belief.   That is up to the management to decide.

However I would argue there are two pieces missing:

What is missing:

  1. Where is your learning and growth perspective?  How you improve your capability to deliver environmental impact.
  2. Where are you actually measuring your impact on the external environment?  Yes you should add an environmental perspective, but use it to measure the impact on teh external environment, and link it, with a cause and effect story, to the other perspectives and your strategic themes.  To find out more about how to do this, see my paper Developing an Environmental Balanced Scorecard

Finally, just to emphasise – what this person is describing is simply a (vertical) theme. Otherwise you will introduce new (horizontal) perspectives for financial compliance,Health and safety, innovation, customer service, sales, cost reduction and every other potential theme of the strategy (as people amazingly do). Guess what when you ask how are these related to the other themes in a cause and effect framework – there is not an answer. Why – because its orthogonal.

If you are still confused, have a look also at my Strategy Mapping 101 video It will explain cause and effect and why simply adding extra categories does not work.