The Applied Balanced Scorecard

“Companies with clearly defined strategies outperform their competitors by a significant margin.” Bain & Company


“Without a strategy, the company is like a ship without a rudder – going round and round in circles, but never reaching its destination.” Peter Drucker


“Strategy is not about planning, it’s about execution. But you can’t execute well without a plan.” Michael Dell


“A good business strategy is not static, it needs to be flexible and adaptable to changing market conditions.” Jack Welch


Using the Applied Balanced Scorecard to Write a Business Strategy

Everyone Pulling in the Same Direction

A business strategy is nothing more (or less) than a document that sets out the ambition of your enterprise and a small number of objectives that must be done in order to achieve it.

Done well, you should manage to draw it out on a single page.

This means you can articulate your strategy in a form that others not so well connected to your business will understand it—and, perhaps more helpfully—you can share it with others.

Everyone should agree on a strategy, otherwise there’s no point having one. It must be grounded in knowledge of what matters most to the various stakeholders.  Without a clear strategy, much time and money is expended on actions that don’t move your enterprise forwards, and it’s harder to energise stakeholders.

“Many leaders expect to drive their business forward by looking in the rear-view mirror of results achieved. Not only is this a near impossible task, but results arrive too late for managers to influence the outcomes.”

Your Questions Answered

I have been coaching leadership teams in the formation of business strategies for two decades and in that time, the balanced scorecard method has become a trusted friend!  When you are in a boardroom with a bunch of folk – all of whom are passionate about their business, its direction and final outcome – the task of building buy-in consensus is difficult enough without worrying about whether you are going to produce something useful at the end of your intervention!

Below I answer some of the obvious questions:

When is the right time to write a strategy?

I would encourage you to document your business strategy as soon as you possibly can, principally because you are unlikely to have a clear way to achieve your business outcomes in your own mind if you can’t write it down on a piece of paper. Once you begin to document your objectives, I suspect you will soon realize there are unresolved questions, vague priorities, and aspirational plans that don’t quite fit.

At the very least, writing up your business strategy will bring the clarity you need to articulate and share your vision with others.

Moreover, the activity of communicating your strategy on a single page will help you to expose cause and effect relationships that exist between the objectives you surface.

What is a balanced scorecard?

The balanced scorecard method is the most common approach to describing a business strategy an approach created by consultants Kaplan and Norton back in the day. As the term suggests, a balanced scorecard is a balanced approach to articulating your business objectives in a form that you can use later to score your business (i.e., in the form of a score card).

If you want to really get your head into the balanced scorecard method, you can always read the book of same name by Kaplan and Norton wrote which isn’t a terrible read. I suspect, however, you’re too busy for that… so, a few years ago, I penned an applied version of balanced scorecard for STARTUPS and wrote up how to implement it in this guide. It tells you everything that you need to know to get it right the first time.

The word ‘balance’ is key. It’s about balancing the demands placed on the enterprise and resources to optimise effectiveness.

Writing a strategy is a journey. While producing a scorecard to allow measurement of progress is the ultimate outcome, it’s not the first milestone to a better way of working.  The balanced scorecard method will take you through these steps in the journey and support you all the way through to achieve the best outcome.  In my experience, follow the rules and it is a method you can trust to deliver.

Why use a balanced scorecard to describe your strategy?

There are many ways you can describe a business strategy.  Why then, use balanced scorecard method to do it?

There are lots of reasons. These are my top ones:

  1. It’s easy to create – you and your stakeholders need only answer four questions to surface the core insight you need.
  2. It’s proven to be a reasonably comprehensive instrument to accurately portray a business strategy.
  3. It’s a common vocabulary to describe business strategy that lots of business people understand because they learned it in college or University.  Consulting firms also use it and teach it.
  4. Even if people have never seen a strategy articulated using the balanced scorecard method before, rest assured, it’s so fundamentally sensible that they will soon understand it.
Tell me about objectives and how many I should expect to have...

Objectives are the specific outcomes you need to deliver in order to achieve your ambition for the enterprise. No business can do too many things at the same time. Normally, around 16 objectives is your limit.

“The key to success is to have focus. Don’t try to do too much at once.”  Lee Lacocca, Former CEO, Chrysler

Gaining agreement on a small number of objectives is a non trivial task. Not all of your objectives will be priorities that must happen in the next 6-months. Once agreed, each should be measurable and assigned to a portfolio in the leadership team.

As Peter Drucker puts it, “Without clear priorities, you end up chasing too many rabbits and catching none.”

Explain the fundamentals of building a balanced scorecard

In essence, a balanced scorecard articulates your strategy by balancing the needs of shareholders, with the needs of customers, and the needs of your enterprise to deliver your plan, both in terms of the processes you need to excel at and the things you need to improve that are presently falling short of the mark.  This creates the four perspectives of a strategy, namely:

  • What shareholders value
  • What customers value
  • The internal processes you must excel at
  • What you need to do differently

The task when writing a business strategy, is to come up with a handful of objectives—probably between 2 and 6—for each perspective. This will produce in total around a dozen things you need to do well in order to achieve your business objectives for the year.

What should I measure?
A strategy without measurement is like driving a car without a steering wheel.

In my experience, one of the most challenging areas of business strategy is working out how to measure it. If you agree with the adage, ‘If you can’t measure it, you can’t manage it,’ then you need to come up with some sort of scorecard to track your business progress. This should be more than merely financial data that can only ever show you results once it’s too late to do anything about it. You can’t drive a business forward by spending all of your time looking in the rearview mirror.

As the workforce consultant, Eliyahu M. Goldratt used to say, “The goal is not to measure everything, but to measure the things that matter.”  All of your strategic objectives should be measured, but some will be more worthy of measurement than others.

There are two kinds of measures:

  • Lead indicators – that let you know you are going in the right direction
  • Lag indicators – measuring what’s happened

You will need both!

Most managers are accustomed to lag measures but find lead measures more difficult to (1) define (2) gather data on.

I suspect you will find it’s not easy to put a value measure against some or all of the objectives you may come up with. There is an art to it I would say. It’s better to get your head around what you CAN measure, and make sure you begin the exercise early of mapping out your strategy, your objectives, and what you can measure to evidence progress. It may be you need to build new systems and capture ‘new data’ in order to measure the things that determine your business success.

Why do I need a baseline...

One final justification for writing up your business strategy as soon as possible comes from this point: You can’t track progress if you don’t have a starting baseline that shows your jump-off point. The sooner you build a baseline, the faster you can evidence to others the level of progress you’re making.

Can you explain why cause and effect relationships between objectives are so important?

One of the gifts of the Balanced Scorecard method is how it exposes the cause-and-effect relationships between objectives.

The scorecard is segmented into four layers:

  • What shareholders value
  • What customers value
  • The internal processes you must excel at
  • What you need to do differently

Bottom up, it exposes how objectives in one layer impact on another. Hence, ‘If we install a new CRM system, then we will capture insights to know our customers better. Consequently, we will be able to tailor personalised offers to customers in a more focused way, leading to higher revenues.’

For example, you might recognise an objective exists to offer great customer service experience. You will also know that, UNLESS YOU DO THIS, it’s not likely your customers will keep paying you. And if they don’t do that, your shareholders won’t receive a **high return on investment **(another one of your objectives).  This means there is a cause and effect relationship between ‘Offering great customer service experience’ and ‘high return on investment.’ The connection between these two objectives will be the thing that you want to measure., I.e. “What do I need to measure in order to evidence that my performance in delivering great customer service experience is resulting in high return on investment?”

An Illustration of how a strategy shapes actions and behaviour in a enterprise

Illustration of The Workings of Strategy and Action Delivery

Inclusion Matters

Everyone on the Same Page

You need everyone to buy into the strategy you write – not only senior officers.

“A well-crafted strategy is worth little without the commitment and support of the people who must execute it.” Robert S. Kaplan

Strategy is not what you say, it’s what you do. And it’s done through people. So when you are writing your strategy, it makes sense to involve stakeholders in the process.  It would be wrong to assume that your workforce doesn’t know enough to contribute. Another mistake is for executives to assume they know enough about what matters most to customers. These assumptions are invariably WRONG or fall short on detail leading to fundamentally flawed strategies.

Our Applied Balanced Scorecard method is an adaptation of the original that installs further safeguards to ensure assumptions are not being made about what matters to customers and other stakeholders.  It employs additional (optional) workshops to build engagement with your stakeholder audience to encourage ‘buy-in’.

Illustration of a Balanced Scorecard

Illustration of The Balanced Scorecard

Turning Strategy Into Action

Moving from Objectives to Actions

Objectives are a good first step, but nothing happens without actions.

“Actions are the atomic cell of business performance. Without them, nothing happens-literally. That’s why they should be allied to objectives and measured.”

The fourth phase of a balanced scorecard program is to determine the actions that need to be performed to deliver an objective. There could be any number of them.

Each has to be assigned a responsible and accountable role to deliver it. It’s sensible to use SMART (i.e., specific-measurable-achievable-relevant-timebound) principles when defining them.

Cascading Your Strategy

It’s no good the objectives of a strategy remaining in the boardroom. They must be cascaded through the enterprise.

Business performance thrives when everyone in the business knows how they contribute to the ambitions of the enterprise.

Cascading a strategy is about portfolio holders delegating the actions that result in objectives they are responsible for delivering. One man’s action is another person’s objectives as you cascade duties through the tiers of an organisation chart.

For subordinate managers, these actions become their objectives. They too can define the actions needed to achieve their assigned goal(s) and allocate to their reports. In this way, every part of the enterprise works to the beat of the same drum.

Communicating Your Strategy

You will want a lot of people to know about your strategy.  The Balanced Scorecard Strategy Map is a one-page ‘steering wheel’ that explains everything they need to know.  This is illustrated below.

“Without communication, even the best strategy remains just a good idea.”  Peter Drucker

The Balanced Scorecard Strategy Map

Want to Know More?  Why Not Read the Book?

This book is about business design and why it’s important not to leave it to chance. It explains the link between thoughtful organisational design and business agility. Read it to learn about the tools and methods you will need to achieve a first-mover advantage in your market. Adapt to change faster than your rivals and operate at a lower operating cost to maximise the potential of your economic engine.

Applied Balanced Scorecard

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