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Different types of balanced scorecard: untangling the confusing language

If anyone says “Balanced Scorecard” ask them what type of balanced scorecard they are referring to.  There are many types of balanced scorecard and the phrase, ‘Balanced scorecard’ has come to mean many different things.  This article will help you distinguish between various types of balanced scorecard, their different uses and the many ways in which the phrase ‘balanced scorecard’ gets used.

It also provides a history of how the approach has developed over time.  The topics covered are:

  1. How did Kaplan and Norton originally use the phrase Balanced Scorecard?
  2. Common meanings and use of the phrase balanced scorecard
  3. Distinguishing between strategic and operational balanced scorecards
  4. Introducing generations or types of balanced scorecard
  5. How different generations or types of balanced scorecard solve different management problems
  6. Balanced scorecards as steering wheels and other presentation mechanisms

1 How did Kaplan & Norton use the phrase ‘Balanced scorecard’ originally?

Since Kaplan and Norton came up with the phrase Balanced Scorecard to describe their approach, almost any set of measures associated with performance management gets called a balanced scorecard.   This is where much of the problem starts.

1.1 Kaplan & Norton described a system for managing and implementing strategy

Let us be clear up front.  Kaplan and Norton were clear that they were describing a system of management.  It was aimed at helping organisations describe and implement their strategy.  It had various components, including a scorecard that was balanced (and strategy maps).

1.2 Unfortunately, the balanced scorecard management system had the same name as a component, the scorecard

Unfortunately, they made one mistake: naming the whole approach The Balanced Scorecard approach, the same as the signature component, the balanced scorecard (where the objectives and measures were recorded).  Their first book was also called “The Balanced Scorecard: Translating strategy into action” (1996).

I believe this duplication is in part the source of the success of the idea and the root cause of a lot of the confusion.  That book was clearly about a management system to support strategy (just read the preface).  However, few seem to have noticed this.  (A historical note: I started working for Norton and Kaplan in their organisation, “Renaissance Worldwide” just after the first book came out).

1.3 Distinguish between “The Balanced Scorecard Approach” and “A structured scorecard” report

So, let us make a first clear distinction (note my use of capitals):

  • The balanced scorecard as a structured report (part of a wider system)
  • The Balanced Scorecard Approach as a system of management

What happened was that everyone focused on the scorecard part: few noticed the system of management for implementing strategy.  (Though the many Renaissance clients clearly understood the difference).  Kaplan and Norton tried to rectify this with their second book title, “The Strategy Focussed Organisation” (2000).

1.4 Balanced scorecard became the universal description for all types of performance management reports.

However, by then it was too late.  The idea was so successful, everyone had jumped on the band wagon.  A balanced scorecard became the ubiquitous name for any performance management system, set of measures or report.   Just as every internet search is a google and very ball point pen was once a biro, every set of measures was a balanced scorecard.  The genie was out of the bottle.

It was such a successful idea, that some consultancies tried to appropriate it, the name. You might have come across the curiously names “Business Balanced Scorecard”. It does rather beg the question, so what did you think the original was for then?

1.5. Kaplan & Norton, tried to get the message out, but were largely ignored

I think of Kaplan and Norton’s third book, “Strategy Maps” (2003) as Kaplan and Norton shouting “For goodness sake, it is about the strategy and the strategy map is central to this!”.  Of course, by this time, it was far too late.  Everyone was creating scorecards that were balanced.  Most were simply ignoring the rest of the approach and the overall strategy management system.

2 Common usage means many types of balanced scorecard

To get clarity of meaning to a any particular type of balanced scorecard , we first have to fight our way through this common usage.

Even 25 years after the idea first originated, any set of measures or any dashboard, can be called a scorecard, and many are referred to as a balanced scorecard (no matter how inappropriate).  It has become deeply embedded in the management lexicon.

This is lazy language.  Lazy because it lacks precision and distinction.  It is the same problem as every measure being referred to as a metric, an indicator or a KPI.  (See what is the difference between a measure and an indicator)   If you use a posh sounding name it sounds more important and it sounds like you know what you are talking about.   Here are a pair of articles that explore this in a bit more detail:

2.1 Operational scorecards and simple scorecards that have balance

What tends to happen is you then get loads of simple, straight forward operational performance reports, that get called scorecards, or often balanced scorecards.  Here are some examples Simplistic balanced scorecards: Please do not do it this way!  Here is an example of a report called a balanced scorecard, when it is not: The balanced scorecard in the NHS (Oh no it is not)

Kaplan calls these ‘Operational Scorecards’, because that is what they are.

2.2 Many so called balanced scorecards do not even have not even balance

Many of these make no attempt to even be balanced.  A McKinsey survey, from around 2005, reported that “80% of organisations reported they had a balanced scorecard.  Yet those reports  contained 70% financial and 30% operational measures. They also failed to provide concise, predictable, actionable information.”  (see why do so many balanced scorecards fail). So these are simply management reports then: not even balanced scorecards, let alone Balanced Scorecards.

3. Two key types of balanced scorecard: the difference between strategic and operational balanced scorecards

The next distinction we need to make is between two different types of balanced scorecard: The operational balanced scorecard, and the strategic balanced scorecard.  They have quite different purposes and focus:

  • The operational balanced scorecard (Kaplan: operational scorecard) is trying to get a grip on what is going on in the organisation.
  • The strategic balanced scorecard is trying to focus the organisation on its strategy and measure the progress of the strategy.

These are two different management needs.  Yes, I know, hopefully the strategy will ultimately affect the wider set of operational measures, but first you have to determine whether your strategy for specific change and improvement is succeeding and where. The difference between Strategic and operational balanced scorecards

Kaplan and Norton’s Balanced Scorecard approach was addressing the management problem, “How do we ensure our strategy gets implemented because the usual lagging financial and operational view of the organisation does not help.”

This leads us to another distinction that gets made: generations of balanced scorecard.

4. Different generations and types of Balanced scorecard: ultimately serving different management needs

In the year 2000, Kaplan & Norton sold the Renaissance Worldwide consultancy business and set up “The Balanced Scorecard Collaborative”, interestingly taking all the collateral and many of their strategy consultancy staff with them.   Their aim was to formalize the approach, certify products, and continue to provide and develop the Balanced Scorecard approach.  Many of the renaissance strategy consultants went with them.  Others like me, went elsewhere.

Around 2003, the idea of generations of balanced scorecards emerged.  A consultancy, set up by an ex-Renaissance consultant, published a paper suggesting a development of the balanced scorecard in generations.  The paper was helpful in trying to clear up some of the confusion that existed in the language and market.  It was clearly, also, trying to position their approach differently to Kaplan and Norton.  They coined their approach as “third generation balanced scorecards”.  The detail of the differences between the two approaches are not important.  What matters is that the approach was evolving in a variety of ways.  In our eyes, both approaches were addressing the challenge of  implementing strategy.  See our article on how different types and generations of balanced scorecard serve different management needs

At this point you are probably thinking what are the other types and generations of balanced scorecard?.  You can leap to the answer and read about the four generations of balanced scorecard and how they serve different purposes.  Here we explain Fourth Generation Strategic Balanced Scorecards

Further resources

This article is a part of our “Modern Balanced Scorecard Zone“, a practical guide full of advice for design, implementation and use.  The links below take you to the major topic areas of the site that will help your balanced scorecard design, implementation and use.  They cover strategy, culture change, performance management, decision making and socialising your strategy

If you still want training for your team on modern balanced scorecards and the fourth generation strategic balanced scorecard approach, then here are some Balanced Scorecard training options, or contact us.