Outcome thinking and balanced scorecards look like two unrelated approaches to managing performance and results in organisations. However, they have very close connections. Learn how knowledgeable application allows these two, apparently different approaches, to work well together.
Some would say that the balanced scorecard is simply a set of measures, in various perspectives, that are used to manage performance. Some would say that outcomes (and the related Input – Output – Outcome model) is merely used to external outcomes. These people would be very wrong. Very wrong indeed.
We often use outcome thinking and modern strategic balanced scorecards, together with our clients. In this article, I want to use our experience so look at the similar characteristics of these two approaches. How, when applied properly, they can work together very effectively.
How are outcome thinking and balanced scorecards related?
To understand how these are closely related we have to look beyond the superficial approaches to both of these models and ways of thinking. We have to look deeper into their underlying principles and approach. When you do this you find that they share many common characteristics. In this article we look at how :
- Outcome thinking and balanced scorecards are both misunderstood approaches, that are often described simplistically and applied simplistically
- They share a common approach to outcomes and the customer perspective
- Both outcome thinking and balanced scorecards look at modelling change, but in subtly different ways
- There are important differences between the approaches that inform how each approach should be chosen and applied.
- Despite the differences, it is often useful to apply both approaches together
If you are unfamiliar with either approach, or want a more detailed understanding of how they work, there are links to resources at the bottom of the page.
Our writing is based on practical experience of studying and applying The range of organisation as have helped, includes:
- Charities: Fund providers, fund receivers and those looking to influence multiple layers of beneficiaries.
- Central Government: eg NHS, MoD, HMRC
- Local Government organisations: City Councils,
- Even commercial organisations such as:
- Several UK water companies where their regulator, OFWAT, requires explicit outcome based thinking.
- An ethical bank looking to use its customers’ money to create environmental, social and cultural impact
1. Both approaches are misunderstood and over simplified
Unfortunately the first connection between these approaches is that both outcome thinking and balanced scorecards are mis-understood, over-simplified and applied simplistically.
Both the balanced scorecard and outcome thinking have a rich vein of thinking and clear principles, that get ignored. It appears a simple model. However applied simply it often fails. Norton & Kaplan wrote five books about the balanced scorecard approach and how it can help strategy and change happen. I often think that some writers have never read beyond page 9 of the first book. I wrote over 300 pages in my book “Strategy Mapping for Learning Organisations” which describes the fourth generation balanced scorecard approach I use today. However what I wrote is not the whole story – we had to cut pieces out.
It is the same with outcome thinking and the input-output-outcome model: applied simplistically, as much public sector and other literature describes, it appears a simple model. However applied simply it often fails. Many applications ignore the Logic model and Theories of change that sit behind the approach, Few realise it has origins if evaluation that give it a particular perspective, but that deeper reading and explorations allows you to see how the approach can be used internally as well (as I explain in the outcome thinking paper).
The first and most obvious link is in how outcomes should be defined. Outcomes are always stated from the perspective of a beneficiary of customer. They are the outcomes that that person (or group of people) want. They are always from the customers’ perspective.
Now you will see very poor examples of outcome thinking where the outcomes stated are simply what the organisation provides. These examples are both incorrect and dangerous. The outcome is always a change for the customer or beneficiary, from their perspective. So often what is written as an outcome is really merely an output: what the organisation provides.
Interestingly this same mistake, thinking what you provide is what the customer wants is very common in poorly designed balanced scorecards. So often I see statements in the balanced scorecard’s Customer perspective (the clue in in the name) where the organisation is describing what they will provide, NOT what the customer wants from their perspective.
In good balanced scorecard design, the customer perspective should contain objectives stated from the customer’s perspective. Ideally statements of the form “I want….”. where the customer is the subject of the sentence.
This is in part caused by poor use of customer value propositions: value propositions that say “Provide excellent customer service”, when what the customer wants is merely, “For goodness sake deliver what I asked for in good condition, when I want it!” and “Let me speak to a human being so I get stuff resolved like an adult!”
Exactly the same is true with outcomes. They should always be stated with a beneficiary in mind, and that beneficiary made explicit.
3. How is change modelled, in outcome thinking and balanced scorecards?
Yes indeed, behind each model is a model of change. Further this model is, for outcome thinking, primarily in the relationship between the organisation and its beneficiaries. In the balanced scorecard model of change you are looking at both strategies that change the organisation and strategies that affect that organisations customers. (However looking carefully at the models of change thinking deeply within the logic model there are also questions about how specifically these resources will be deployed to best effect.)
3.1 Outcome thinking has drivers of change
Outcome thinking is often referred to as the input-output-outcome model. In fact, its origins lie in the external evaluation, by fund providers, or social change activities. (Just as OFWAT are using for Water companies, public sector auditors are doing for public sector bodies and fund providers are doing for the organisations they are funding.) These funding bodies are asking:
“If we give this organisation some of our funds, will they change people’s lives? Also can we actually examine the model of change that they believe they will apply, with our money, to bring about this change. Can we see if these changes are happening so that we can believe the benefits will eventually manifest themselves?”
This model is far more sophisticated than the simplistic inputs/outputs and outputs/outcomes are measures of efficiency and effectiveness that gets applied in the public sector. It is about tracing the logic of the model and exploring the organisation’s goals and strategies for influencing and bringing about change for the beneficiaries of the services that are using the funder’s money. (You can read more about this is our paper on the underlying principles within the outcome thinking model). In other words we are describing how change is expected to occur.
In the case of the outcome model its origins are about the fund provider evaluating whether the organisations models of change are valid (before they hand over the money) and are working (after the money has been applied).
3.2 Balanced Scorecards have drivers of change
Guess what, we have a completely analogous approach within the balanced scorecard.
I assume that you are beyond the stage of thinking that balanced scorecards are merely collections of measures in perspectives. (If not please have a read of my articles on cause and effect and strategy maps, or watch my very popular strategy mapping 101 video).
In anything but the most basic balanced scorecard implementations there is a cause and effect model. A model that works across the objectives defined in each perspective. The simplest version of that balanced scorecard cause and effect model says:
“If we improve our underlying capability, (Learning & Growth perspective) we will improve our processes (Process perspective) so that we will deliver the objectives our customer’s want (customer perspective) so we shall improve our finances (Financial perspective).”
Now what this model is doing is teasing out and describing a model of change. A strategy for change. A causal relationship that explains how the strategy will have an effect. What it is doing is clearly establishing links BETWEEN the objectives in each perspective. This is most important: I always tell my clients that the links between objectives are more important that the objectives (or at least as important).
4. Important differences between outcome thinking and balanced scorecards
Please don’t go away from this articles thinking that I am saying these approaches are the same.
The balanced scorecard asks for objectives in the process perspective: the input, output, outcome model looks for outputs from the processes. These are quite different. One is an objective for the process that can also be used to describe the qualities of the process whereas the outputs merely refer to what the processes produce. THEY ARE QUITE DIFFERENT!
The balanced scorecard asks for learning and growth objectives in the lower perspective. The input, output, outcome model looks for inputs (but does not characterise them as objectives, nor as capabilities that will drive change).
The balanced scorecard is quite selective: As you work through the balanced scorecard’s cause and effect model, you should be asking “What are the few things that will make the biggest difference?”. Th inputs, outputs, outcome model is asking you to list all the inputs that go to create the outputs: Again, VERY VERY DIFFERENT.
The Balanced Scorecard is about executing strategy in an organisation to bring about internal change as well as, eventually, changes in the external world. The input output outcome model is primarily about testing whether the activities will bring about the outcomes for the beneficiaries. Again quite different.
The balanced scorecard is primarily a tool for internal performance management and strategy execution. Its customers are the internal managers (though some parts may be provided externally). In contrast the Logic model that underpins the input, output, outcome approach is primarily for external evaluators. External bodies looking to see if the organisation is using its funds well. Again a very different starting point.
5. Outcome thinking and balanced scorecards: the final connection
So we have established that there are some differences between outcome thinking and balanced scorecards, but that both approaches, have some important common overlaps in their underlying thinking: both outcome thinking and the balanced scorecard, seek to define the benefits for external parties (be they beneficiaries or customers); both approaches are looking at the strategies for change and drivers for change; and both ask, how will this change come about.
In fact, there are many more areas where, deep down these two approaches have similarities: areas that mean it is very simple, when applied properly, to link an approach that looks like one for external evaluators (outcome thinking) to the strategy delivery and performance management approaches internally that are often supported by more modern strategic balanced scorecards and strategy maps.
So the important message here is, that these are not separate approaches. When you understand how they both work in principle, more deeply, you find it is easy to fit them together into a coherent approach. When you do this you avoid a lot of wasted time and effort that duplicate performance management approaches create.
6. Applying outcomes models and balanced scorecards together
Talking with a client yesterday we were lamenting that both outcome thinking and balanced scorecards are poorly understood. Also, that both are applied simplistically. Both are rich techniques, with many similarities and common thinking deep down. The common thinking is both logical and reveals a rich application and practical experience. Unfortunately this richer, more sophisticated and more valuable thinking gets ignored. Please do not ignore the rich thinking that lies behind these two approaches. It is likely to lead to poor implementation.
If you are struggling to apply either of these two approaches, or even combine them, do give us a call. There are times when 15 years of experience can save you a lot if time. As a minimum have a read of our outcome thinking paper and watch the Strategy maps 101 video. You will see where these are similar. And when you want a longer discussion, or to solve specific problems in your organisation, give us a call.
7. Want to learn more? Further reading
Learn more about outcome thinking, Modern Balanced Scorecards and Performance management. here are three useful resources:
- If you are interested in our Inputs, outputs, outcomes white paper, then follow this link to obtain a copy.
- Understand learn some of the important aspects of modern balanced scorecard design: Watch our Strategy maps 101 video
- To get a wider view of different aspects of performance management, the various types and how the interact, see our introduction to various Types of performance management
8. How we can help
If you are struggling with outcomes, or the Input, output, outcome model, or Strategic Balanced Scorecards, and want training or expert help, then simply get in touch.
To find out more, or for an informal discussion, Contact us