How do you test a balanced scorecard to see if it will be informative, useful and effective? With over 20 years experience designing and implementing balanced scorecards I have one key test that usually reveals how the balanced scorecard has been designed and is being used. It is a simple test to apply. It is simple and most informative.
I actually have a whole set of tests for the various balanced scorecards I see. In my role as a Strategy and Performance Consultant, I see a lots of ‘balanced scorecards’, and so called balanced scorecards. From my early days working for Norton & Kaplan I have seen most variations and alternatives. Many of these balanced scorecard tests I can run quickly in my head, such as how they are talking about and measuring the customer perspective. Other tests involve conversations with the client about their strategy, their underlying problems and how they want to manage.
The most useful way to test a balanced scorecard
However, I have one overall way to test a balanced scorecard. A test that usually reveals how the balanced scorecard has been designed and how the balanced scorecard is being used. The test is very simple.
I look at the measures and indicators on the scorecard, usually some sort of spreadsheet, and I ask myself: “Given this information, what decisions could I, or should I, now take?”
Ask yourself:”Given this information, what decisions could I, or should I, now take?”
What I generally find is that there are a collection of measures. However, there is often little structure to them. There is rarely a real cause and effect story or any drivers linked as a set to create change. So there is no story and little suggestion of the decisions that should now be taken.
Even rarer do I find the information about what previous decisions may have been made about the situation I am looking at. Has someone already taken any remedial action?
Most often the scorecard is simply a set of things that are easy to measure, put together in a report.
Test a balanced scorecard to see if they read beyond page 9 of the first book
There are a couple of simple tests to see if you have anything approaching the sort of balanced scorecard that Norton & Kaplan proposed, or one that is simple a set of measures that someone has decided to call a ‘balanced scorecard’.
The first test is simple. Look at the “scorecard” and see of there are only measures, or there are first objectives, and measures associated with those objectives.
Are there objectives associated with the measures in each perspective?
If there are only measures, then the designer did not even read to page 9 of the first of Kaplan and Norton’s five Balanced scorecard books. It is very clear, You always create objectives before measures.
The second test is just as important and required them to read to page 30 of the very first book. That is, is there a cause and effect relationship in the objectives (or at least the measures) across the perspectives of the scorecard.
Is there a cause and effect relationship between the objectives (or even the measures) in the various perspectives?
The cause and effect relationship is fundamental to describing how strategy will happen. Of course if there is not even any perspectives, or there is no relationship amongst the perspectives, it is simply a list of measures and should not be called a balanced scorecard. It is just a card with scores on it.
A slightly more subtle way to test a balanced scorecard
The more subtle test is about the story of your strategy. “If you described your strategy, and then looked at your balanced scorecard, can you see the story of your strategy in your scorecard?.”
Ask yourself: “Can you see the story of your strategy in your balanced scorecard?”
Of course if the management team are not looking at your balanced scorecard, it has failed a very basic test of relevance and usefulness.
Try this test yourself
I recommend you take a look at your scorecard or balanced scorecard and ask yourself, or a colleague, whether it informs decisions and whether it tells the story of your strategy?
If it fails these two core tests, you should probably think about getting something that does.
To learn more, clients find these articles interesting:
- Understand the different types of performance management
- To see how balanced scorecards have developed over time, serving different purposes
- How Fourth generation strategic balanced scorecards address today’s problems
And of course we can help – so give us a call.