Balanced Scorecard Failures

Alan, James - While it is great that Robert Davies wrote something, the article itself is really quite old - written about 10 years ago. As a result, he bases his comments on the experiences of the time and doesn't reflect how Balanced Scorecard has evolved since then.

He seems to rely on the experiences of others for identifying the pitfalls people encounter when implementing Balanced Scorecard (e.g. Ahn, Radnor and Dinesh citations). I'm familiar with some of this work and these authors base their observations of problems with Balanced Scorecard on even simpler / earlier versions of Balanced Scorecard than discussed by Robert Davies.

The suggestions he makes for what to do are consistent with what others wrote at the time, and sensible if you are dealing with Balanced Scorecards that used 1st / 2nd Generation design methods. But are probably not that useful for more modern designs, or those for organisations in public / NGO sector.

The Balanced Scorecard (BSC) is a strategic performance management tool - a semi-standard structured report, supported by proven design methods and automation tools that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions. In college many management and economic students were written dissertation on balanced scorecard for getting ideas among students. I would suggest reading Dr Robert Davies: Balanced scorecard: Success without the pitfalls http://www.drrobertdavies.com/balancedscorecardsuccessproblems.php. I am sure you will get more idea about Balanced Scorecard and how it control without any fail.

Various studies have been done that show that on average about 2/3 of Balanced Scorecard projects don't realise the benefits that were expected for them. This puts Balanced Scorecard roughly inline with other major organisational change activities - such as BPR, Quality Management, Reorganisations etc.

2GC has for a long time highlighted the need to understand why Balanced Scorecards fail as an essential part of doing a better job of implementing them - if you don't really understand why one project fails and another succeeds, it is hard to adjust what you do (because you simply don't notice the problems).

In 2000 2GC began posting resources on the internet about Balanced Scorecard design and implementation, and we continue to do so to this day in the 2GC Performance Management resouces area. If you visit the case studies section you can read several case studies where we document and discuss problems organisations encountered in implementing Balanced Scorecard.

One of the most common causes of failures we encounter is where an organisation designs a Balanced Scorecard using an inappropriate design approach. For example, in the "Arran" case study (see link above) a Balanced Scorecard that had been very successfully used to manage operational activity in a sales organisation failed when it was applied to a marketing organisation.

If you look around on the 2GC site you can see suggestions about how to avoid these problems - in particular look in the FAQ section for useful info.

HTH

I got this exact question on my ACT|IAC panel earlier this week. Rather than point to failures, we looked at clear indicators of success. Personally, I think you can look closely at the Strategy-Focused Organization principles and mark those 5 as your indicators of success. Two in particular stand out: leadership involvement and integration with the governance system.

Chandru Krishnamurthy from McKinsey also pointed out three indicators that he has seen. 1) Intensity of an individual who supports the project (someone really needs to be driving it) 2) Simplicity - you have to make sure that the BSC is not too complex. 3) Consequences - people must be rewarded or punished based on the results.

Personally, I think you need to be a little careful about the third one as many successful organizations have used the BSC for strategic learning, rather than punishment, but overall I think these are great suggestions as well.

There's a decent explanation of how to avoid failures here:

http://www.igloosoftware.com/blogs/expertcorner/5reasonswhybalancedscorecardfailinorganizationsand

I think the largest reason that they fail (I know that's not your question, but I will get to that in a minute) is due to lack of leadership engagement. Without sponsorship, any change initiative (like the BSC) will fail.

As for notable failures, Kaplan and Norton haven't documented too many failures of the BSC framework, but they did document the case of Store 24, a organization that used the BSC to effectively implement a failed strategy.

http://hbswk.hbs.edu/item/5919.html