After analyzing multiple experiences in very different types of companies and countries, there is no doubt about a remarkable circumstance: the applications made are as rich (or poor) and profitable (or useless) as conceptual wealth (or poverty) and sagacity. practical (and foolish) user management… in many ways the best Balanced Scorecard applications have surpassed what was published by their original authors (Kaplan and Norton)!
Introducing improvements
They themselves showed some limitations, several of which have already been overcome by many users:
- Inclusion of perspectives referring to the community > and suppliers. Identification of objectives1 of satisfaction not only of the stakeholders related to the perspectives but also of satisfaction of the company with them. Algorithmic relation of intra and inter perspectives objectives. Weighting of objectives, with / without regression. Inclusion of results and deviations in the BS table. Graphic representation of goals and results in> the BS tree. Ad hoc inclusion of scenario variables and strategies in the tree and in the tabular, (Schoemaker). Identification of restrictionsfor the achievement of optimal goals, and design of ways of overcoming them, (Goldratt). Incorporation of what is related to human and intellectual capital in the perspective of organizational learning, (Sveiby). Direct interaction of the perspective of shareholder satisfaction with the satisfaction of the workers, by way of variable compensation (for example, variable compensation proportional to the eva generated and generated both individually and in groups): (Stern Stewart, Rappaport). Inclusion of synthesis of Situational Analysis, by perspective, objective and / or goal in the tabular BS, (Argyris). Synthesis inclusion of the Strategic Adjustments by perspective, objective and / or goal in the tabular BS, (Argyris).
On the other hand, the increasing experience in the design, construction and computerization of the Balanced Scorecard's has also shown some pitfalls and how to overcome them, introducing some improvements; for example:
There is no point in trying to prepare a BS only for measurement or control purposes 2, without prior review and update or elaboration of the strategic approach of the business, the corporation and the functions to be reviewed through the BS 's. This approach involves:
Formulating the strategic purpose, objectives > and goals subordinated to the previously envisaged macro and micro scenarios as possible: involves discovering opportunities and threats.
Identify the resources, core competencies and core capabilities, to achieve what is desired: involves identifying strengths > and weaknesses.
Generating and determining the probable effect of strategies and counter- strategies, due consideration of allies, opponents and indifferent, and their offensive or defensive nature: entails hypothesizing the eventual response of the affected actors, and in turn designing our subsequent move.
The evaluation of excellence in internal business processes, understood as productivity, that is, as the levels of quality, efficiency and effectiveness of the processes that contribute to the satisfaction of stakeholders, is very important, but it is not enough: what is important is that the processes contribute to the generation of value for the shareholder. This forces -following Keen- to classify the processes into 5 prominence categories:
- Identifiers: those that make the business be identified by the stakeholders -especially by the clients- as different and outstanding compared to others, generating sustained preference, loyalty, margins, etc. leading to a high, sustained and growing management of value (assets) example: timely delivery of attractive and perfect products, provision of timely services that exceed customer expectations, etc. Priorities: those that determine the success of identification processes; Examples: processes that allow the delivery on time and / or the perfection of the products or services (and that the client does not see). Back-up: those that are carried out to support the realization of> the aforementioned processes, and with respect to The most we can achieve is that they do not destroy value (generally liabilities);Example: administrative and computer support processes (sometimes outsourceable with advantages). Mandatory: those carried out by legal obligation, and with respect to which the most we can achieve is to destroy less value (liabilities); Example: processes to comply with tax, environmental, labor laws, etc. Folkloric: those that are carried out out of habit, and that generally destroy (passive) values; example: some rites.and that they generally destroy values (liabilities); example: some rites.and that they generally destroy values (liabilities); example: some rites.
The subclassification in active and passive processes refers to the fact that active processes generate more value than they cost (create value), while liabilities generate less value than they cost (destroy value): by the way, value and cut are determined in terms of eva (economic value added: Stern Stewart, McKinsey, etc.).
It is preferable not to fully develop the Strategic> Planning of the business, the corporation and the functions> - much less the actions - without> prior and full communication, knowledge, understanding, acceptance and commitment of the strategic approach of the business, the corporation and the functions outlined in the respective BS 's.
It is extraordinarily> important to periodically carry out dual-loop strategic learning sessions that allow both analysis and understanding of the situation (present, past, and external and internal), and to design and carry out powerful and appropriate strategic adjustments (specifying costs, durations and impacts) as well as redesign and adjust -in consequence- the strategic approaches, the> strategic plans, and the BS's etc.
The introduction of these and other improvements takes us beyond the> classic BS, and we can start to refer to the enhanced BS> (BSm) or enhanced Balanced Scorecard (eBS).
Goals or restrictions?
A major problem with the BS, improved or not, is represented by the discussion raised by Campbell & Alexander in the HBR, on the satisfaction objectives of the voracious stakeholders> of the firm, interpretable rather as restrictions > (contraints), than -if > they are not satisfied - they affect the possibilities of the firm to continue existing, since the stakeholders can move away from the firm, seduced by competitors who look more attractive.
Hence, even the universal search and maintenance of competitive advantages can be considered more than an objective as an important restriction.
If the firm's mission or strategic business purpose is identified as the firm's raison d'être, or as what it does and produces to become what it wants to be (vision), and therefore as the source of the The most important strategic objectives of the firm, so these should be the objectives to be outlined in the Scorecard… emphasizing them disproportionately compared to others, whatever their origin and with much greater reason if more than objectives are restrictions (Balanced Scorecard unbalanced ?).
This can even be stated mathematically: the objectives to be optimized would be those that derive from the purpose and the restrictions would be the objectives of satisfaction of the stakeholders (those of the BS, improved or not). Should optimization be nonlinear? Yes.
Now, on what does the achievement of the objectives to be optimized depend? What are the variables to include in the objective function?
The classic answer is that this depends on the strategy and that consequently - to determine the variables - the first thing we should do is develop a strategy.
Campbell & Alexander point out - reasonably and with several real examples - that successful practice starts in reverse, part of an insight (insight) about how to generate more value than the competitors! A whole perception can be derived iteratively from this strategic perception! strategy and a series of tactic (s)… and of all this a purpose and objective (s)… that are achievable!
Insight:
This approach is compatible with the proposal by Hamel & Prahalad on the strategic purpose, the leverage of resources and strategy as architecture. By also proposing Campbell and Alexander to fully integrate strategy formulation with strategy implementation, the approach is consistent with Mintzberg's findings on emerging strategies that are generated on the fly (strategy as sculpture).
Campbell and Alexander classify the contributions of different authors to the generation of insight (perception) into three main fields:
- Operational Improvements (MO's): reengineering, time-based competition, benchmarking, total quality management, empowerment, etc. Observation of the Future: critical factors (KFs) of future success (Porter, Schoemaker, Hamel & Prahalad, Foster, Motorola, etc. and the chaos theorists: Prigogine / Capra). Behavior and Culture (CyC): 1) fans of free data planning: strategic purpose, mission, vision, etc.; and, 2) fans of organizational learning: Argyris, Senge, etc.
Business score card (bsc):
From everything previously stated, it should not be deduced that the BS or the eBS, to reflect the satisfaction objectives of the voracious stakeholders -interpretable as relevant restrictions to satisfy- is useless: quite the contrary.
Have clear restrictions -in respect to reach the stage previsibles- with insight (insight) the purposes poses a strategic challenge more defined and affordable -to overcome that exitosamente- forces face a holistic and systemic vision: for example by applying the constraint theory (TOC / Goldratt).
What if what is raised is that without the prior definition of a strategic approach subordinated - to the extent - to the strategic perception of each business and the strategic purpose pursued in it, the elaboration of a BS or an eBS becomes useless: Hence, in this regard, and further and further from the BS, it is suggested to use complementary formats a, b, and g, which constitute what we have called the Business Score Card (BSC). The idea is to use them as guides to think creatively and thoroughly… and not to generically mechanize a process that must be designed - necessarily - to suit each case and business. For this, it is essential not to confuse the strategic process of elaborating (and agreeing on) the business approach to generate value -which is much more art than science- with the structured process of systematic planning derived from it: we refer to the elaboration of general action plans, specific action programs and operating, investment and financing budgets.
The elaboration of the strategic approach is more architecture, sculpture, custom painting, planning (strategic or not) is more engineering, accounting, generic carpentry: strategists need to be architects, planners just need to be craftsmen… the terms are similar but they do not mean the same thing; in fact they require very different attitudes, skills and competences (although obviously all of them are important, necessary and complementary).
The idea behind the 3 constituent formats of the Business Score Card (BSC) is to provide a means to reinforce and facilitate - not to constrain - the iterative process of elaboration of the strategic approach (generation of insight / perception, purpose, strategies, tactics, scenarios, objectives, and restrictions type BS and / or eBS: acting creatively and tailored to each case and each business.
The objective of the BSC is to encourage deep strategic thinking on which the elaboration of BS's and / or eBS's must be sustained and avoid the super foolishness of trying to use them as simple artisan tools for measurement and management control.
Management control is a frankly withdrawn managerial discipline, compared to the much more powerful approach of ensuring management through situational analysis and strategic adjustment that - with a strong emphasis on constraint theory - entails strategic or dual-loop learning (Argyris), strategically coordinating the business actions that he suggests (Flores / Echeverría).
Networks, Purposes and strategies:
In Capra's latest book -The Web of Life- an interesting synthesis of the emerging theories of self-organized systems is proposed. Self-organization is a fundamental claim of every human organization that manifests itself through its strategic rethinking: an act of cognition not always well carried out or achieved…
The configuration or pattern in the form of a network has the characteristic of going in all directions, as a non-linear interconnectivity: by generating loops or feedback loops, it has the communicational capacity to regulate itself, and therefore to learn from its mistakes. This implies not only the possibility of self-regulation but also that of self - organization.
Self-organization - beyond the original cybernetic approach - implies in turn the spontaneous possibility of developing new structures and models, which entails the idea of structurally open systems operating far from equilibrium: which in turn requires a continuous flow of energy and Matter through organizationally configured network systems (dissipative structures / Prigogine: structurally open networks (with change of content) and organizationally closed networks (with stability of form).
The development and structural change of the network is the result of acts of cognition associated with learning: it is not simply a linear reaction that causes an effect.
The concept of cognition is broader than that of thought and implies -at a human level- not only perception, emotion and action but also language, in addition to conceptual thinking and all the other attributes of human consciousness (Maturana and Varela): interaction cognitive system with its environment is an intelligent interaction that allows you to adapt to it and continue living… for the achievement of its PURPOSE, if the RESTRICTIONS allow it…
It would seem interesting then to take all this into consideration when designing and operating the network or mesh of interconnection between the cognitive processes that are part of the strategic rethinking leading to the formulation - with insight - of purposes and strategies… systemically interconnected with objectives and tactics, scenarios and restrictions.
Hence, a complementary purpose of this writing on the BSC (very preliminary by the way) is also to warn about the risk of not subordinating the computerization strategy of the BS's and the eBS's to what is posed: the danger - to paraphrase Drucker - is to computerize wonderfully well the system of restrictions / indicators (BS's) that is not, with the tool that should not…
Notes:
1: objectives should not be written using verbal infinitives, since all verbal expressions in infinitive (except those that are equivalent to achieve, ensure, achieve, etc.) imply action, and an objective is not an action: if we accept that an action it is carried out in order to achieve an intermediate or final objective, etc.!
Highlighting that the Bs achieves or facilitates the strategy in action, leads some to express the objectives in terms of action (infinitives): which is clearly incorrect; strategy refers to how to achieve what is wanted to be achieved against opponents (purpose: what to achieve), while action (infinitive) refers to what to do purely technocratic (in the good sense of the word). What it does make sense to highlight is that if the conceptual BS is developed or disaggregated as a concatenated tree of objectives / indicators -from the VAN of the EVA- it makes it easier to identify the value-generated medium-end chains (value levers).
2: using the BS for these purposes is like using a tank to fight with an ant.
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