Five Common Mistakes of Balanced Scorecard Implementation

Sometimes, when someone learned that I worked in the affiliate of Norton and Kaplan in Russia and the CIS (Balanced Scorecard Collaborative, BSCol), a question about the viability and practical applicability of the Balanced Scorecard pops up. More often, they ask the question “What typical mistakes are made in the implementation of the Balanced Scorecard?”

Of course, not only during my work in BSCol I had the opportunity to study and consider in depth a lot of attempts, as well as to participate more than once in the developing and setting up of strategic management. Nevertheless, it was then that my practice was most saturated with such projects. So, for example, at that time we were just helping Uralsib to meet the difficult requirements of Balanced Scorecard inventors. As a result, Uralsib found itself in the Hall of Fame.

Other examples can be cited. Some will be successful, others not quite. It is worth noting that cases of failure, alas, are not as rare as they might seem. By analysing a number of projects in which I have had the opportunity to deal with strategic management based on the BSC, I was able to identify a certain number of reasons for failure.

Mistakes in an Implementation of the Balanced Scorecard

These reasons for the failure of such undertakings can be grouped into five main points:

1. The desire to cover the whole organization or group at once. This is fraught with a gradual fading of the project and bogging-down in a huge number of small details. It is better to do it step by step and focus on one or two management levels at most. For example, start with the board of directors or the sole executive body – the general director or an executive board. Having agreed with each other on long-term management, leaders will cascade this approach further down the organisation. It also helps to avoid withdraw of senior management (provided there is interest in a first place).
2. Trying to make as cheap as possible, leading to the choosing of low-skilled consultants. I do not encourage you to be wasteful and abandon a reasonable approach to costs. However, it is hardly a reasonable approach to pay for a replicated (and therefore inexpensive) ready-made IT solutions, or to hire yesterday’s students who thumbed through a book or two by Norton and Kaplan. Hire experienced consultants who have completed more than one such project, preferably in different industries.
3. Willingness to do very quickly and efficiently. For example, “Implement the BSC in 16 weeks”. It is a good slogan of a seasoned careerist, who wants to get himself another stripe or a new shoulder mark quickly. Undoubtedly, projects should end on time, but admit that formally receiving a set of documents and accomplished activities does not mean success and subsequent working outcomes. Besides seeming similar projects, for example, in large financial or insurance group and in a small construction company are the whole another thing. Including its duration. Plan deadlines, but be guided by results: they are project goals.
4. Technocratic approach. Often the idea of strategic management turned into a set of figures. I even know a consultant trying to find a sacral formula of balancing indicators in a given scorecard. Also alarming is the huge offer of various miraculous IT tools, the implementation of which, according to the sellers, immediately “will increase the efficiency of the company by 15-20%”. Let’s say it’s true (even highly hypothetically and improbable). But is this our main goal? Operating efficiency is excellent. However, why reduce the long-term business success and strategic management to this? Even if the miracle-IT toy will help with efficiency, it is not a good result. Look at the software as water pipes: they are needed and important, but they should be where you need them. And do not cost like the whole house.
5. HR Approach. In one company, I saw a concept substitution, when by an “Implementation of BSC” an attempt to cover an introduction of a quasi-grading system for personnel management, which in turn aimed to reduce payroll budget by discriminating employees with newly made-up rules and requirements. Motivation is important. Nevertheless, one can often observe how the idea of strategic management, alas, degenerates into some “motivational system”, despite the fact that none of such even manages motives at all. Of course, the link with material incentives is important; without it, it is senseless to start a project. However, such a system is a consequence of ensuring and supporting long-term results, a way to assess everyone’s contribution to the achievement of strategic goals.

It is very discouraging when there is a combination of these omissions. Often, inspired by the beautiful and really useful idea of the BSC, managers and shareholders decide to apply it in their business. Such aspirations are quite right and commendable. The best management practices allow for more efficient management and greater profit in the long run. At the same time, the question of applicability and operability of such attempts becomes extremely important.

A good strategic management system is more an art than an exact science. It must take into account many factors and be based on good practice in other companies.

A question can help to avoid mistakes and get a positive result:

What Is the “Balanced Scorecard”?

Like any complex, multi-dimensional concept, it can be defined differently, for example, as information flows perspective. Or to present it as a set of material incentives for employees. It is also possible to try to create a detailed model of all companies and look at it through the prism of achieving balance.

However, it is important to keep in mind that

A Balanced Scorecard Is Only the Core of Strategic Management

Strategic management itself is a way to organize the thinking of an organization, to put decision-making in a constructive direction so that focus is on long-term strategic goals.

Is strategic management possible in Russian companies? Absolutely! And although so far only two Russian financial and industrial groups are in the Hall of Fame of Balanced Scorecard Collaborative, there are other worthy and good examples.