Kaplan and Norton’s future vision of the Balanced Scorecard

I define Enterprise Performance Management (EPM) much broader than its narrowly perceived view as a CFO initiative with a bunch of dashboards. Under EPM’s broad umbrella are these component methodologies: (1) profitability analysis; (2) forecasting, planning, and budgeting; (3) customer intelligence; (4) process improvement; and (5) strategy execution. The last one, strategy execution, relies on strategy maps, strategic scorecards (with KPIs), and operational dashboards (with PIs).

 The creators of the strategy map and balanced scorecard concept, Professors Robert S. Kaplan and David P. Norton, recently wrote an article, “The future of the Balanced Scorecard.” I have excerpted below their five futures expansions. The two that caught my attention are the integration with enterprise risk management (ERM) and with business analytics. Software technology supports both, and my belief is software unifies EPM with all of these components. Here are the excerpts:

 Strategic Supply Chain Alliances and with Partners Too

Collaborate with external constituents, such as key suppliers, customers and alliance partners, to develop a strategy map that describes and communicates the strategic relationship. Once developed, the map and scorecard are used to govern and guide the relationship. Building these together creates trust and understanding across organizational boundaries and mitigates the cultural conflicts that are the prime source of failures in strategic relationships.

 Public Sector Government

Realize that cities and provinces, and even nations, around the world are using our framework for describing and communicating strategies for competitive advantage, and then successfully implementing their visions with our strategy execution system. As citizens around the world demand more transparency, accountability and performance from their governments, the benefits of using the BSC to focus and align public-sector entities will become even more compelling in the years ahead.

Empowering Risk Management

Use the strategy map as a jumping-off point for risk management, especially the identification and management of strategic risks. Much of risk management today is narrowly oriented around compliance and controls. While managing these risks is important, companies often neglect the inherent and unavoidable risks that arise from their strategies. For each strategic objective on their map, company managers should identify the risk events that could lead to failure to achieve the targeted performance. They can then quantify the likelihood and consequence from each identified risk event and develop key risk indicators and risk mitigation initiatives that serve to reduce the likelihood and/or consequences of the most significant risk events.

 Empowering Change Management

Use the strategy map as a central change management tool. Among the most important change management principles are building consensus among the guiding coalition and communicating the new vision and strategy clearly to all employees. Having the executive leadership team build the strategy map and scorecard together creates consensus and commitment among the team. The map itself has proven to be a great communication tool to reach the hearts and minds of all employees. The quantification of performance for strategic measures gives employees a deeper understanding of what they are being asked to accomplish with the new vision and strategy, and empowers them to act in a way that helps the organization succeed with its new strategy.

 Leveraging Analytics with BSC

Expand the role for analytics in the strategy execution system. One of our disappointments over the past 15 years has been the slow uptake by companies to allow more testing of their strategies. They can use BSC data to distinguish when disappointing performance is caused by poor execution of a good strategy, as opposed to when it has been caused by very good execution of a poor strategy. Data analytics can also be used to design operational dashboards by identifying indicators and metrics that best predict excellent customer and process performance. Additional analytic opportunities are integrated with a company’s activity-based costing system to develop customer profitability (and loss) metrics to include on the scorecard’s customer perspective.

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 Are you motivated? Start small, but think big.

tags: balanced scorecard, enterprise performance management, enterprise risk management, profitability analysis

One Comment

  1. Posted April 28, 2012 at 6:17 am | Permalink

    Thank you for the analysis Gary. The one that struck me most was the extended use of the BSC in the management of external relationships. Much food for thought there.

    As regards the use of the BSC in government, I am unsure that it represents the "future" of the BSC, as some governments are already using it to communicate progress on strategic inititiatives to their citizens. Perhaps the future here is the expansion of such practices and their adoption by more countries and government bodies around the world?

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