For the previous two articles in this series I have made it clear that you should NEVER do weighting of measures across your balanced scorecard. Never ever. It is a waste of time, trust me (and Trust Kaplan and Norton – see later). I have seen people try it and it becomes an academic exercise with no real purpose. It adds nothing to your balanced scorecard. Ih fact it literally clouds (obscures) the issues.
You can read the two previous articles here Never do weighting across a balanced scorecard (part 1 of 3) here Never do weighting across a Balanced Scorecard (part 2 of 3). However let us look at when some form of “weighting” exercise can reveal something useful.
There was a suggestion earlier that if the management team really want a weighted ranking across a balanced scorecard then give them one. I would not do that. (Especially for the reasons at the bottom of this post). In contrast I would do something different: you can think of it either as “reductio ad absurdum” or improving the quality of conversation. Instead of giving them and answer that will always be wrong in someone’s eyes in the team, offer to facilitate a discussion where they place rankings on every thing.Here are three things you can try:
1) Allocation of resources gives you an investment weighting for the balanced scorecard
1) Give then all a nominal £100. Ask them to place the money on the Objectives (not measures) they prefer. They can only place then in the process and learning and growth objectives. They can place £3 or £1 or all $100 or none. They don’t have to place all their money – they can retain some if they like..
This is an allocation exercise and forces investment bets.
It is a variation on the, ‘Where shall we invest our funds for greatest return?’ exercise.
What is interesting is that, for some objectives, a small investment will make a big performance change. For other objectives a large investment still might not be enough to close the performance gap. This exercise reveals it.
2) Balanced Scorecard weighting: What do we focus on and what do we leave out?
2) Ask everyone to choose three measures they want to know about as a manager. Compile the list. Then get people to argue for inclusion of the more obscure ones.
Then repeat asking what they want as a general manager and executive team. (It will get a different answer)
It will get a debate going. It will also force out who sees what as important and why. And also collective vs individual responsibility.
3) Balanced Scorecard weighting used for incentives and rewards
3) Ask each to list the one, two or three measures they would be willing to be incentivised and rewarded on. (Do this exercise last). You want to establish
a) how much of their (existing) pay they would risk as being a bonus based on performance
b) What targets they would see as a bonus-able level.
c) Whether they would take shared incentives rather than individual ones (Are they working as a team).
d) How they would drive the improvements to ensure they received their bonuses. What they would measure to check they were on track to get them.
e) Now check that the company’s money is invested in the same way as the incentive system suggests it would be.
Trust me, this would be very revealing about their behaviour as a team, they views of performance, their perception of risk reward for themselves and the organisation.
Ho Ho Ho. a very practical way to ask the management team how they think performance should be managed.
I promise, after this, the issue of weighting will have disappeared.
Finally, a note on weighting the measures in a Balanced Scorecard from Kaplan and Norton
If it has not then this should be the final convincing words on the matter, that persuades people they should not try to weight the measures in a balanced scorecard. If you read Kaplan & Norton’s “Alignment – Using the Balanced Scorecard to create Corporate synergies” (the fourth book in their Balanced Scorecard series) on page 267 they say,
“We often are asked how to weight the measures in a balanced scorecard. Such a question may be a sign that the organization does not truly understand the Balanced Scorecard management system. It is using the Balanced Scorecard narrowly for extrinsic motivation, by modifying its compensation plan, but has by-passed the more important strategy-setting and communication aspect of the Balanced Scorecard, which creates intrinsically motivated employees. Nevertheless, linking the scorecard to compensation is the time (and the only time) when weights do have to be created so that a multi-dimensional Balanced Scorecard can be reduced to cash, a single dimension.”
Enough said I think