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The Fourth Generation Balanced Scorecard approach

The Fourth Generation Balanced Scorecard approach is about managing Strategy, People and Performance in a changing environment. It updates earlier generations of the Balanced Scorecard approach for agile, learning organisations that contain human beings. Learn about the benefits, underlying thinking and if they might suit your organisation.

Stages of strategy and performance problems

The fourth generation balanced scorecard is a natural progression for today’s management challenges.

Learn about the benefits, rationale and underlying thinking, for our Fourth Generation strategic balanced scorecard approach. The environment in which we manage our people and organisations has changed a lot since the original balanced scorecard. Some changes are subtle: some are paradigm shifts. This fourth generation approach is designed as a more agile, responsive, and human approach to managing in our new and often challenging environment.  A full list of contents is below.

“The Excitant fourth generation strategic balanced scorecard is designed as a more agile, responsive, and human approach to managing in this new, different and often challenging environment. “

Beware: The 4G strategic balanced scorecard approach should only be used use IF you want to address the sort of organisational and management challenges that it is designed to address. Your needs or management issues might be better served by an earlier version, or something completely different: Understanding how different generations solve different management problems will help you.

To understand about Fourth Generation Strategic balanced scorecards and whether they would be relevant to you, have a read through the topics on this page.

Contents, with links to the various sections

This is an set of links to the various topics about the Fourth Generation balanced scorecard approach on this page.

  1. The shifts in management thinking:
    1. Paradigm shifts.
    2. How management thinking has changed in the last 25 years
  2. How different generations or types of balanced scorecard address different management problems (Overview)
  3. 4G Strategic Balanced scorecards: the differences and benefits
    1. Starting with a model of learning, and strategic learning
    2. Create space for leadership and management
    3. Handing changing and uncertain environments
    4. Not performance management: Instead, making good decisions, executing them well and learning quickly
    5. A social tool, not simply a technical tool
    6. Adaptable to the variety of business models and operating models we have today
    7. Work just as well in non-for profit organisations, as commercial organisations.
    8. Support discipline and culture of performance
    9. Encourage the quality of conversation, thinking, decision making and learning.
    10. Including social and environmental impact
    11. Integrate with management systems
  4. The development of the 4G Strategic Balanced scorecard approach:
    1. Practice and use, not theory
    2. What the Fourth Generation Balanced scorecard is not
    3. Testing and refinement with our various clients
  5. Not for everyone: it depends what problems you are trying to solve
  6. Next steps and further information

The Fourth generation Strategic Balanced Scorecard is designed so address particular management and organisational issues.   Just to be clear, this Fourth Generation approach is not a simple measures system (see earlier generations). It is an approach to improving how you manage your people and how you all manage your strategy, performance and decisions.

Only consider the Fourth generation approach IF it addresses the organisational and management challenges you face. (If it does not, perhaps you need an earlier generation of balanced scorecard, or some other solution).

1. Shifts in management thinking: how we manage our people and organisations

Over the years we have noticed significant shifts in how our clients, the executives we were working with, thought about their organisations, their strategy, their people, their customers and their performance.   Executive and management thinking, and organisational design, has been moving on.

Keep calm. This is simply a paradigm shift

Keep calm, These are simply paradigm shifts in how we manage our organisations.

These were not small shifts in their thinking, but significant ones. Shifts in the underlying assumptions that affected strategies, business models, customer interactions, how people in their organisations were engaged and managed.  These shifts in thinking have accelerated, and became more widespread, with the credit crisis, the social media revolution, with new models of business, with changes to how we work, and how we think about work, changes to technology, economics and competition, and a need for organisations to be more aware, responsive and agile. Many are paradigm shifts. You can read more about these paradigm shifts in detail here.  These changes and shifts will continue.

Successful Executives are changing the way they think about strategy, people and performance. They are questioning the assumptions that underpin our approaches to how we manage.

We find our clients recognise these paradigm shifts.  However, sometimes it is hard to challenge and change the deeply embedded assumptions we make about how we should manage.  This is about how we could manage. Helping clients to choose different, hopefully, better ways to think about how they manage.  It is the thinking that underpins the approach.

It is hard to challenge and change the deeply embedded assumptions we make about how we should manage. However we have choices about how we think about how we manage, and therefore how we can manage.

1.2 Do you recognise any of these statements or sentiments?

Here are some of the questions our clients ask us that lead to conversations about potentially using the Fourth Generation balanced scorecard approach.

Have a read through these statements from our clients: If you do not believe at least some of these statements, then the 4G Strategic Balanced Scorecard approach is NOT for you. If you recognise them, then a fourth generation approach might be appropriate.

Typical Strategy questions:

  • More responsive Strategy: How do we find a way to move from an annual strategy process? We want to be more responsive to change, and to treat strategy as a more continuous process of testing and learning”
  • Unique Business model: “We have a unique, different, specific business model.  The traditional balanced scorecard does not suit us.  How do we develop an approach that suits our unique model and strategy?”
  • Changing culture and behaviours: We want to create change in the organisation, in culture and behaviours. How do we develop our strategy and strategy implementation to support culture change?”
  • Silo thinking and working: “We seem to operate too much in silos.  How do we break down the silo thinking and working in the organisation? How do we improve collaboration and partnerships?”

Typical Performance management questions:

  • The culture of Performance: “We are good at the discipline of performance: the measures and targets and meetings and actions.  Our problem lies in the culture of performance.  How do we develop the right attitudes and behaviours around managing, learning from and delivering performance.”
  • A Learning Organisation: “We want to be a learning organisation.  How does that change the way we think about performance management, and the way we manage our people and performance?”
  • Big data vs small scorecards: “We have a few KPIs that we should focus on.  At the same time we have enormous amounts of ‘big data’.  How do we reconcile these two extremes to make decisions better?”
  • Laborious performance management: “Our balanced scorecard does not engage people. It is laborious and very technical.  How do we make it a part of the fabric and conversation of the organisation?  How can we improve how we make, take, act and learn from, our decisions?”

These few questions highlight the shifts in thinking that are natural for many managers today.

Their deeper question is often, “How can we manage better with this thinking”.  For others the shift is more significant: a realisation that there is a better way to manage.  As one Chief Executive put it, “I realised that how I think about performance management, is at odds with how I think about our people. That has to change.”

1.3 The Fourth generation approach is in response to this sort of thinking

It was in response to these shifts in thinking, that the fourth generation strategic balanced scorecard approach evolved.  We realised that the shifts in thinking of these successful Executives were fundamental.  If they are changing the way they think about strategy, people and performance then the assumptions that underpin our approaches to managing strategy, people and performance also need to change. Our fourth generation Strategic balanced scorecard approach is a response and a solution to these changes.

Excitant’s fourth generation Strategic balanced scorecard approach is a response and a set of solutions to these changes and paradigm shifts in management thinking.

Before we go any further it is worth establishing why we call this a Fourth Generation Strategic Balanced scorecard.  because, the other types and generations of balanced scorecard are still useful in solving some management problems.

2. Understanding different types and generation of Balanced Scorecard

Kaplan and Norton published their first balanced scorecard article in 1992. The approach had quickly evolved from a measurement system to a system for managing strategy.  Despite this, organisations have implemented different approaches to the balanced scorecard to solve different management needs.  Using generations is a useful way to classify how organisations think about their challenges and how they solve them with different types of balanced scorecard.   Each generation serves a different purpose and therefore has a different approaches and different benefits . In summary:

Different perspectives on balanced scorecards and performance management

The Fourth Generation Balanced scorecard is a natural progression of management needs

4.1 First Generation Balanced Scorecards “I want to get a grip”

Though Kaplan and Norton saw their approach as a tool of strategy and a system of management, many organisations simplified the approach.  They used only the scorecard part to provide a set of measures. This served a need.  So, a first stage of development and thinking has to start with this simple view.  First generation thinking addresses the management issue of control.  They are useful operational tools.

First generation thinking addresses the management need, “I want to get a grip on the organisation”. “I want to decide where to make changes and improve. Give me a range of measures that do that.”

4.2 Second Generation Balanced Scorecards “Give me measures that will drive performance”

In second generation balanced scorecards the focus is on the few measures that matter most. These are often referred to as KPIs or CSFs. These might be leading indicators of performance. They might be a focus of results.  The few measures (KPIs) are chosen to focus the organisation’s attention on the most important drivers of change or performance.

Second generation balanced scorecard thinking addresses the management problem “Give me measures that will drive and predict performance, because if people pay attention to these we will drive improvements.”

4.3 Third Generation Balanced Scorecards “Systematically implement our strategy”

Third generation balanced scorecard thinking is about systematic, methodical, implementation of strategy.  These Strategic Balanced Scorecards address what Kaplan & Norton set out to address: Strategy, its management and implementation. This is not merely a set of measures on a scorecard: it is a system of management.  This is what Kaplan and Norton describe in their books. The Third generation strategic balanced scorecard  is designed to capture a strategy, systematically align resources and the organisation, and track the implementation of that strategy over time. This is useful for many organisations.

Third Generation strategic balanced scorecards address the management question “How do we implement strategy, systematically, so we are sure it will deliver?”.  They are not merely a set of measures on a scorecard.  It is a system of management.

4.4 Time to move on: Fourth Generation Strategic Balanced Scorecard thinking

At Excitant we have helped many clients to systematically capture, implement and manage their strategy, by adopting 3rd Generation strategic balanced scorecard systems.  Increasingly, we have found our clients want something more than this.  For today’s environment we need a significant shift in how we manage our strategy, people and performance.  Yet, I still come across organisations struggling to get a grip on their organisations, influence behaviour, focus activity, get their staff to do the right things in the right way.

Excitant’s Fourth Generation Balanced Scorecard Approach refines and adapts their well proven approach for today’s environment.   It continues to use those aspects that are is still appropriate, useful and effective, whist refining what needs to be updated for today’s environment.

Today, we find that clients come from a different place. Recognising they manage amidst uncertainty and risk, they want agility and responsiveness and the ability to learn as they execute their strategy. They realise that control and measures are inadequate, it is about treating people as human beings, focusing on behaviours, not simply measures and targets. They need to empower people to make decisions locally, have conversations with customers in a human voice and that the most successful executives are managing with both left and right brains. They need ways to capture and manage their new models of business and new ways of thinking about strategy more appropriate to the second and third decade of the 21st century.

This is why the Excitant Fourth Generation Strategic Balanced scorecard have evolved.  To answer this different management need.

5. The features and benefits of the Fourth generation strategic balanced scorecard approach

We have been designing and implementing balanced scorecards since 1996. From these experiences we have developed a number of enhancements that build upon these earlier approaches. Enhancements that executives find intuitive and sensible. So much so that we have had projects where spontaneous balanced scorecards started to break out.

This has relied on re-thinking, turning upside down, some of the common practices and assumptions in performance management. For instance we focus on behaviours, not on measures and targets. We assume strategy is continuous. We focus on learning, not simply control. Together, these techniques are encapsulated in the Excitant Fourth Generation Balanced Scorecard approach.

Below are some more details of the principles and underlying thinking within this approach.

5.1 Fourth Generation Balanced Scorecards start with a model of learning about the strategy as it is implemented.

They explicitly address how an organisation learns, rather than just control and management. Learning is fundamental to balanced scorecard thinking. They speed up the process of an organisation learning from its strategy. Avoiding large plans, the organisation is more amendable to change and more able to respond when changes are needed. This enables learning about the strategy and about the effect of performance.

They recognise how the organisation’s approach to governance affects strategy maps and balanced scorecard design. The organisational learning approach reinforces the need to keep the name of the fourth perspective “Learning and growth”. That is why the fourth perspective is called “Learning and growth”. If it is renamed it undermines how the organisation learns. The focus on learning fundamentally changes how these balanced scorecards are designed, introduced and used.

5.2 The Fourth Generation Balanced Scorecard create the space for both leadership and management.

Leadership creates the space for your people to perform. Management is making sure it happens. The fourth generation approach explicitly describes where leadership and management play a role in performance management.

Left and Right brained leadership.

To support the leadership and management, Fourth Generation Strategy maps and Balanced scorecards have an “Organisational values” perspective. This underpins the existing four perspectives and incorporates the organisation’s values as a driver of performance and change. Organisational values are represented by a lower, fifth perspective that underpins the learning and growth perspective. We have used this approach since 1998.

Our approach invites you to both lead and manage. This is built into how our fourth generation balanced scorecards are designed implemented and operated.

5.3 Fourth Generation Balanced Scorecards: the discipline and culture of performance.

Traditional scorecard development, design and use focuses on the technical aspects: the measures, the targets and the discipline of performance.  The fourth generation strategic balanced scorecard allows for various cultures of performance.  It treats the approach as a social tool, not a technical tool.  It encourages judgement and evidence.

When we manage performance we have to ensure a discipline of performance, but also create the appropriate culture of performance.

“Measure mania”, “the tyranny of targets, “silo working” and “feeding the beast” are symptoms of a poor performance management culture. Of course, you need the discipline of performance management to keep a grip on the organisation, but how do you unleash the potential of your staff to perform to their best?

The discipline of performance is about doing the basics. Evidence is needed to ensure you have the facts so you can manage: the basic information to make decisions. Having that grip without burdening the organisation, without causing more problems than benefits.

The culture of performance is about getting the best from your people. It is about creating the space for your people to perform and unleashing their potential. It is about building their judgement, helping them to understand, analyse and make decisions.

When we manage, we use judgement and evidence to make decisions

Judgement is what we pay our experienced managers for. So how do we build it? How do people learn? Our approach helps organisations develop their people,

5.4 The Fourth Generation Strategic Balanced Scorecard assumes the environment is uncertain, contains risks and assumptions.

They support strategy and decision making during uncertainty and change.

The future is uncertain. When we conceive of our strategy we include risks, uncertainties and assumptions. We do not conceive a single view of the future, a mythical single “destination”. Rather we conceive of a journey to potential destinations and uncertainties along the way. This is an approach that reflects how Executives actually think.

Our challenge: To manage clearly and decisively, yet be flexible and responsive, amidst risk & uncertainty.

So, we need tools designed to encourage thinking and develop conversation amongst the management team about the organisation’s future. Tools that ensure that the team are clear: where they agree; where they are uncertain; and clear where (and why) they disagree. These are built into the approach.

These tools and techniques set out the level of ambition and rate of change the organisation wishes to achieve. They help you look forward to describe the environment and the organisation at several chosen points in time. In this one respect it is like a statement of destination, but our approach goes much further. We include assumptions, uncertainties and risks. Capturing the reality that our environment, market and situation might change direction, where there are assumptions about the environment, identifies the uncertainties that need to be understood and risks to be mitigated.

Understanding where there are uncertainties, assumptions and risks amidst this ambition, means that you know what you have to continue to monitor as a team, as your strategy unfolds and is implemented.

5.5 They include an external perspective. This has two parts:

5.5.1 An external context

Measures and targets have a context. This context is vital to ensure that the measures and targets stay relevant as the environment changes. It also makes it much easier to compare departments, regions or countries that have the same measures but are in different situations.

Awareness: The Fourth generation balanced scorecard looks at the organisation’s changing context, using an External Perspective.

5.5.2 External Predicting indicators:

External Predicting Indicators (EPIs) are used to monitor the external environment.  They are used to look for indications that the assumptions behind the strategy has changed or that the environment has altered substantially. These are derived from the Tangible Future and Strategy map. The EPIs ensure that managers are plugged into the environment in which their strategy is being executed so that when they are reviewing the strategy with their strategy map, they are also conscious of the potential of their environment to change.  They inform and support the management discussion and conversation about the context of the strategy

5.6 The Fourth Generation balanced scorecard incorporates social and environmental impact

We incorporate social and environmental impact without destroying the cause and effect model across the original balanced scorecards perspectives. We recognise that these are a consequence of the organisation’s activities and behaviour.

We need to properly capture our strategy for influencing our Social, Environmental impact and responsibility

Environmental impact, is added as an external perspective alongside the financial perspective. Social impact can be added above the customer perspective. This represents the wider impact on society or the community than is represented by the customer perspective.

We retain the environmental and social impact question that the other balanced scorecards perspectives ask. What is the financial impact on the company? What do our customers want? What do we have to do well to achieve this? What do we have to learn and grow as an organisation to do this well? How do social and environmental thinking affect our organisational values. These questions embed corporate social responsibility into the strategy and the social and environmental perspectives capture the consequences.

5.7 A clear, simple, public sector and third sector model that reflects how they really work.

Many seem confused about how to use balanced scorecards and strategy maps in the public sector. We don’t understand why they are confused as it is very simple as our approach explains. We call our approach “The three ball juggle”. (Though sometimes there are more that three balls) The public sector strategy map model understands the tensions and satisfies the three main (often conflicting) demands on public sector organisations:

The 4G Balanced Scorecard for Public sector organisations models the challenges if partnership, and the strategies needed for austerity and improved service delivery

  1. Serving the diverse needs of the public, community and partners,
  2. Whilst satisfying the demands of regulators, politicians, governance and fund holders,
  3. Yet doing this economically, within the financial and funding constraints.

Many public sector and third sector strategy maps lose the underlying cause and effect model. Ours does not lose this important component. We have a clear simple and logical model that preserves the cause and effect model, so you can describe strategy and show what drives performance. It works for any public sector or third sector organisation. We call it the three ball juggle. You will find it in the various public sector balanced scorecard case studies and examples.

3. Based on practice, with the input of Executives with real world problems to solve

This Fourth generation Strategic Balanced Scorecard approach is based on practice, not mere theory, nor some clever marketing device.  Our Chief Executive, Phil Jones, worked with Norton & Kaplan for over 4 years, when the approach was initially maturing.  He understands the underlying thinking and principles principles upon which the original approach was developed.  He has conducted over 60 strategic balanced scorecard engagements.  In the foreword to Phil’s second book, ‘Strategy Mapping for Learning Organizations’ David Norton himself said, “Phil Jones makes a unique contribution to the field of performance management” and described the book as “…as a drivers manual for anyone implementing a balanced scorecard performance management system”.

This Fourth generation Strategic Balanced Scorecard approach is based on real client experience in a wide variety of different types of organisation.  It has to be practical. Everything we do has to pass three tests with our clients: 1) Does it make sense? 2) Is it useful? 3) Can you use it to make a difference?

This is not theory: it has been developed with many clients who have used and applied the approach. It has to make sense, be useful and help you make a difference.

The approach has been refined and and developed with clients who have input their experience and ideas.  They have found value from our thinking and approach, for their organisations.  Might you?

Our clients have found value from our thinking and approach. Might you?

Not “Re-inventing the wheel or “Not invented here” methodologies

We see many so called balanced scorecard enhancements out there that knock Norton & Kaplan’s work, to then suggest some alternative of their own.  Usually they are completely simplifying Norton & Kaplan’s approach or making up a new approach to try and distinguish themselves in some way.  Some simply re-label the approach as their own.  looking at their work, many of the originators of these “enhancements” appear never to have read beyond the early material. Others make an assumption about the approach (usually false) and dismiss it as incorrect, only to substitute one of their own.  In the process they often undermining the integrity of the approach as a whole.

This is not simply “Best Practice”, but “How the Best Think”

You can try to copy what others so.  It is better to learn how they think differently. Do not copy what successful organisations appear to do. This is how the “Best practice” approach.  Unfortunately, like copycat strategy, copycat activities rarely succeed.  Rather learn how to think in the way successful executives and businesses think.  This way you can evaluate if how they think, and act, makes sense for you.

Do not copy what others appear to do. Understand what they believe, and how they think about what they do. Then you can make truly informed choices about what you believe, think and do.

Understanding what they believe, why they believe it and how they think about their strategy, people and performance.

5.8 Well developed techniques

These techniques are well developed. We have been using some since 1998 whilst others are more recent. Every client we work with will fit on this ladder somewhere.  Most of our clients use our fourth generation balanced scorecard with some aspects of fourth generation (though occasionally they need help getting past generations one and two first).  If they can only reach some aspects of fourth generation at the moment, we leave them legacy, and aspiration, to reach the other aspects when they are ready.

You can read about some of the techniques within this approach in “Strategy Mapping for Learning organizations”, written by our Managing Director Phil Jones, and published by Gower. David Norton kindly contributed the foreword to the book, saying:

“This book is a ‘drivers manual’ for anyone who is implementing a Balanced Scorecard performance management system. […] it is required reading.”

and

“…the work of Phil Jones makes a unique contribution to the field of performance management.”

The best way to understand these developments is to have us explain them to you. To discuss arranging a briefing for you and your team at your own premises, simply contact us.

Development, testing and refinement of the fourth generation balanced scorecard approach

Over the years we have tested, refined and developed the Excitant 4G Balanced Scorecard approach by listening to successful executives and how they think: by researching current thinking that challenges how we manage , people and performance; by testing these ideas with our clients and applying what works in today’s organisations.  Underpinned by how successful executives and managers think about their strategy, people and performance today (not how they thought about it 10 or even 20 years ago).

We have tested, refined and developed the Excitant 4G Balanced Scorecard approach by listening to successful executives and how they think, and helping Executives apply the approach in a wide variety of organisations.

The Excitant 4th Generation Balanced Scorecard is now a sophisticated approach for systematically and continuously learning from your strategy, for socialising behavioural change, and for creating rich informed discussions about performance, within and beyond the organisation.

The Excitant 4G Strategic Balanced Scorecard is for Executives who want to systematically and continuously learning from your strategy, for socialising behavioural change, and for creating rich informed discussions about performance, within and beyond the organisation.

 

The assumptions underpinning early balanced scorecard thinking had changed.