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Modern Balanced Scorecard Design Principles: Design for success

Here are eleven core balanced scorecard design principles.They underpin an effective approach to Strategic Performance Management using a modern Balanced Scorecard approach. They are part of a set of resources for people interested in effective Balanced Scorecard design and use.  For a quick introduction to the design of modern Balanced Scorecards, watch our video: Strategy mapping 101.  It is a super, twenty minute, introduction that will dispel a lot of myths and help you design an good strategic balanced scorecard.  The eleven principles we cover here are:

  1. Be absolutely clear what problem you are trying to solve and therefore what types of Balanced Scorecard you need.
  2. You never create a balanced scorecard for an organisation
  3. It is cause and effect that creates balance (not adding in extra measures into perspectives)
  4. Never, ever start with Measures.Start with objectives.
  5. Measure what you want to manage.  Beware what gets measured gets managed: do not end up managing only things you think you can measure .
  6. Scorecards are not the whole picture: Make sure you use a strategy map and a tangible future.
  7. Ensure sure you are explaining and communicating the strategy.
  8. It is a collective endeavour.  It is about collective understanding.  It is a social tool, not simply a technical tool.
  9. The balanced scorecard is about learning.  Learning is fundamental to its design, implementation and use
  10. Make sure you have top level sponsorship – or forever be an operational detail.
  11. This is all about making good decisions and executing them well. Make sure you are actually improving how decisions are made and implemented.

You will find links to further useful Balanced Scorecard resources at the bottom of the page.

1 Be absolutely clear what problem are you trying to solve and therefore what type of balanced scorecard you need

Before you start any ‘balanced scorecard’ project, two things are vital:

  1. You understand that there are different styles and types of balanced scorecard.  Not everyone is referring to the same thing when they use the phrase. You must appreciate the range of types of ‘things’ that get called ‘balanced scorecard’. Read “What is a balanced scorecard when everything gets called a balanced scorecard?
  2. It is vital you understand what problem management are trying to solve.  Then you can choose a style, type or generation of balanced scorecard that is designed to address that broad problem. To understand the different styles and needs read Read “Different management needs: different types of balanced scorecard“.

If you don’t know where you want to go (the purpose) and you don’t know what vehicle you are in (the type of scorecard) then you are unlikely to get there.  This applied to any project, but especially ‘balanced scorecard’ projects.  Otherwise you might end up in a mess, like this example: “Does your balanced scorecard reflect your organisation?”  There is another vital piece about ownership which we come to in a while.

Knowing what problem you are trying to solve, is related to how you test whether a balanced scorecard is actually useful. This article provides a series of tests of a balanced scorecard, including the most crucial test of a balanced scorecard and its usefulness.  I strongly recommend you try these few simple tests on your balanced scorecards.

2 You never create a balanced scorecard for an organisation!

There is a myth that you create a balanced scorecard for an organisation.  You don’t.  (A myth created by looking at and misinterpreting examples in the books).  You create a Strategy map and balanced scorecard for a team.  You create a set of strategy maps and scorecards for an organisation.

3 It is about cause and effect, which creates balance.

The most common misunderstanding about balanced scorecards is that people think it is a categorisation of measures.  They then try to create balance by putting extra measures in the categories or perspectives. They are looking through the telescope through the wrong end. Balance is a consequence of having a cause and effect story across the perspectives. Have a read of What is the correct balance of measures across perspectives? To understand the role of cause and effect in balanced scorecard design principles, read of What really makes a balanced scorecard balanced?

What matters is the perspectives and the relationships between the perspectives.  The perspectives of a balanced scorecard are not a categorisation.  They create a cause and effect relationship. Ignore this at your balanced scorecard’s peril. The route in is the strategy map.  To understand how the balanced scorecard uses cause and effect, perspectives and strategy maps, why, watch Strategy mapping 101 or read Strategy maps are about cause and effect.

4 Never, never, never, ever start a scorecard project with measures.

The biggest mistake people make in balanced scorecard design is to start with measures.  “This is easy, we have plenty of measures, so I will simply collect them into the perspectives.  Only a basic reading of page nine of Kaplan and Norton’s very first book will reveal that they create objectives before measures. They start with objectives. The objectives are in perspectives.  The measures are tested against their ability to represent the objectives.  Have a read of Scorecard projects never start with measures and Avoiding premature measure design – use objectives first.

A related problem occurs asking for standard balanced scorecard templates.  This might be OK if you are simply trying to get a grip on an organisation and want a standard set of measures (A first generation operational scorecard).  It is a bad way to think about it for any other type of balanced scorecard and management need.

Start with your objectives or even strategic goals.  Develop these objectives first, and understand the cause and effect relationship between the objectives in the various perspectives.  Then, eventually you can look look for measures of what you want to communicate and achieve, across perspectives.

5 Measure what you want to manage, (not manage what you can measure).

We have two problems with the expression “What gets measured, gets managed“.  The first is that it tends to get interpreted as manage what you can measure, so that people shoot out and start collecting measures.  As a result, only what can be measured is what is eventually managed.

The second is that management is much more than measurement.  That is obvious, but people designing balanced scorecard often forget that.  They focus on the measure, not the management. To consider what you want to manage, have a read of “Measure what you want to manage“.  or The danger of ‘What gets measured gets managed’ – a better approach.   So work out what you want to manage, before you go anywhere near measures.

6 Scorecards are not the whole picture: The keys to effective balanced scorecard design are the strategy map and a tangible future

If you want to get beyond a first generation, simplistic, operational scorecard, you need some sort of strategy map. Here you can learn all about them in Strategy maps and strategy mapping: an essential guide. To be really strategic, you also need a tangible future to orientate the strategy to the future in a tangible and specific way. To understand the role of tangible futures and strategy maps read Strategy maps and the tangible future.

The Strategy Map and the Tangible Future are the tools that help you work out what you want to manage.  Once you have them, then you can start to look at the scorecard part of the balanced scorecard.  This sequence is at the heart of the fundamental balanced scorecard design principles.

7 Make sure you are explaining and communicating the strategy.

Does your strategy map and balanced scorecard describe and explain your strategy?  If not, what strategy is it encouraging?  You should be clear about the themes of your strategy and how they relate to Balanced Scorecard perspectives.  Have a read of your balanced scorecard should explain your strategy.  Your strategy map, strategic themes and balanced scorecard should help you communicate your strategy.

Learn more about this topic in our “Communicating and Socialising Strategy Zone“.

8 Balanced Scorecard design is a collective endeavour – it’s about collective understanding.

Too often these ‘balanced scorecard’ projects are seen as technical projects.  “Just get some measures and a software tool and we can produce some reports.”  Nothing could be further from the truth.  The balanced scorecard is not a technical tool, it is a social tool.  It should be social in its design, implementation and use.

This means that the quality of conversation, thinking and decision making should be considered all the way through.  You are not simply disappearing into a dark room to come out with a set of measures.  You need to be taking hearts and minds through this.  Balanced scorecard design should create ownership and be a collective endeavour.  Of all the balanced scorecard design principles, this is the one that gets most ignored.

9 The Balanced Scorecard is about Learning

This is one balanced scorecards design principle that everyone misses. The origins of the approach sit with Sesame street, and cognitive learning techniques applied to how organisations learning and grow.  You can find out more in Modern Balanced Scorecards: the importance of the Sesame Street connection. The learning and growth perspective is so called, because it is about how the organisation will learn and grow.  Please, please, please, do not rename your learning and growth perspective.

Strategy evolves, you learn from its execution.  Management is about testing and learning from its execution. Performance management needs to reflect this.If you throw out the learning, you are throwing out a core principles that underpins all the strategic balanced scorecard thinking. You have been warned (See How to avoid strategy by hope and magic)

10 Making it strategic relies on top level sponsorship: get it, or be operational.

We could not miss this one out, could we.  For goodness sake, make sure your Chief Executive is on board and you are solving his or her problems.  How to make your balanced scorecard the Chief Executive’s balanced scorecard.

11 Your Balanced Scorecard design should help you make good decisions, execute them well, and learn quickly from them.

Just in case you are thinking of ignoring these principles, remember that the balanced scorecard is a blank tableau and any design reflects your organisation’s thinking.  Here is an example of an organisation that got it wrong: As the manager said, and he was not being complementary, “Our balanced scorecard reflects our organisational thinking

Further Balanced Scorecard, strategy and performance management resources

  1. If you want to find out more about Modern Balanced Scorecards,
    1. then explore the Balanced Scorecard Zone in more detail.  That will help with balanced scorecards to the third generation.
    2. Watch my Strategy Mapping 101 video
  2. If you want to look wider at performance management, and diagnose where performance management problems might lie, then have a look at our Performance Management Zone.
  3. To understand strategy design and implementation better, visit our “Strategy Zone
  4. To understand why we see decision making as so important, visit: “The decision improvement zone
  5. To go beyond first, second and third generation Balanced Scorecard have a read about Fourth Generation strategic balanced scorecard approach.