How do you measure sustainability using the Balanced scorecard and an Environmental Strategy Map
This question actually raises two separate questions
- How best to measure sustainable and environmental activities and strategy?
- How do I represent them on my strategy map and in my balanced scorecard?
An Environmental Balanced Scorecard
I often get into discussions about how the Balanced Scorecard needs another perspective in addition to financial, customer, process and learning and growth to represent the environment. If you are trying to do an environmental scorecard read this, because it explains why doing so will cause you to make many mistakes and miss a real opportunity. We started developing these over ten years ago, so know what works and what misses the point.
Adding an extra environmental perspective to your balanced scorecard seems an obvious thing to do, but can cause two problems. It means you will lose the drivers of sustainable activity. It will also cause you to look at sustainable activities in isolation rather than as a part of what everyone does. Both create problems for organisations and undermine sustainable and environmental activities.
As you will discover reading further, you can represent any environmental strategy for an organisation within the balanced scorecard framework as a theme, which does not destroy its structure and increases the impact of your environmental strategy, objectives, measures and initiatives. It also makes it easier to tell the story of your environmental strategy: and that must be a good thing.
Some argument you need a dedicated environmental perspective in the scorecard otherwise it does not address the significance of Kyoto (or other environmental legislation) and its impact on management reporting. For instance with Kyoto:
Chapter 40 of the Kyoto agreement sets out some national level PI’s related to the environment and sustainability. Kyoto Chapter 40 defines Performance Indicators for use at Government level, and Government will pass the necessary measures into law that will force organisations, profit and not-for-profit, into reporting on them. 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.
Does sustainability reporting, as a global issue, fit into the Norton & Kaplan scorecard model? Isn’t this balanced scorecard model ultimately profit driven? Doesn’t sustainability address a wider social impact? Therefore it seems legitimate, if only on a practical data management basis, to have “Environment” as a fifth perspective.
Why you should not simply add an environmental perspective
This is all true, but leads to a wrong conclusion. Trying to argue for a separate “Environmental perspective” misses a fundamental understanding of the balanced scorecard model.
Why this thinking is wrong? Lets us look at some examples that demonstrate how sustainability as a strategy is best represented.
Sustainability and environmental strategy are themes, not perspectives. Your sustainability or environmental strategy is a theme of your strategy that spans the existing balanced scorecard perspectives. It is a (vertical) theme of your strategy map.
To understand this, just for a moment think of all the other similar aspects of a business. You could 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 then ask “How are these related to the other perspectives in a cause and effect framework?” there is not a simple answer. Why? Because what they are doing is lumping anything associated with the environment into a single perspective of the strategy map whether they be related to values, capability (learning and growth), process, customers and their needs, financial impact or CO2 emissions. Therefore you lose the causal nature of the thinking and relationships between perspectives. They lose anything that drives and tells the story of the strategy. You also lose the ability to ask, questions about how the strategy happens.
There are at least five potential themes in a sustainability strategy map that illustrate how they should work. All of these illustrate how all the Balanced Scorecard’s perspectives apply. Along side an organisation’s strategic themes of making some sales, managing costs, complying with health and safety, etc, there are possibly another 5 themes to do with the environment.
To find out what these themes might be visit our website and read the rest of this article on Environmental scorecards here