The Balanced Scorecard business evaluation model emerged in the 1990’s as a new approach to tactical management. Ever since its introduction, this framework was immediately accepted by organizations in both manufacturing and non-profit spheres. The BSC was recognized as the best theoretical framework by American Accounting Association in 1997. Some of the influential business reviews consider it as one of the most remarkable innovations of the twentieth century. However, despite its popularity, the system may have some disadvantages. In this article we are going to make a brief overview of the BSC related problems, as well as dwell upon the system’s common misconceptions.
Five Major Problems
Similarly to other complex systems, this framework for strategic evaluation requires dedication and understanding of the innermost processes happening within a given business unit. It is not just about measures and tactics, it’s a complex concept that requires engagement of all the company’s employees and managers. Otherwise, this great tool is useless, and can even do harm to the business’s financial health. Below we will describe the most common problems you may face when using BSC.
Poorly defined Key Performance Indicators. Identifying these metrics is a crucial step in designing your business evaluation system. It is important to select the drivers which do influence the overall performance of a certain unit. These drivers must be selected by professionals who can see the cause-and-effect relations between various processes belonging to different Perspectives (Financial, Customer, Internal Processes, and Learning and Growth).
Poor data mining. Lack of a good system for data collection is also a popular problem. It is impossible to utilize BSC without ongoing data collection. This problem may have two forms: lack of methods to gather data, and negligent attitude to data collection. It is important to remember that when you think up KPIs you have to simultaneously figure out effective methods to gather information on these metrics.
Lack of a responsible review structure. In case you take your strategic management seriously, you should consider creating a team of professionals whose task will be to monitor the framework’s outcomes, gather data and share this information with other structures.
No process improvement mechanisms. Even in case you have a great review team, right KPIs, and brilliant data mining tools, the Balanced Scorecard makes no sense without methodologies on improving internal processes.
No external focus. To set up adequate goals it is important to conduct what is called SWOT analysis (strengths, weaknesses, opportunities and threats) instead of focusing exclusively on internal issues.
The popularity of this strategy evaluation framework has led to some misconceptions about its usage and efficiency. Learn about some of these myths to get a better understanding of its true power.
BSC is just for managers. This isn’t true. This framework does its best in case all the company’s employees are engaged.
Scorecard helps to develop a good business strategy. Sure, this system deals with strategy, but it doesn’t create it – it allows us to see how well the strategy is being implemented.
The more KPIs you enter, the better is your scorecard. Wrong! A great number of indicators is confusing and distracts from the key processes.