It's Not Whether You Win or Lose, it's Whether Your Scorecard is Balanced

Seminal business/management books are few and far between, although you'd never guess that walking into your typical Barnes & Noble and knee-capping yourself over the inevitable piled-high/piled-deep table displaying the combined wit and wisdom of wannabe guru's.  My own pet theory as to the prodigious and perennial output in this genre is that far far more are bought than are read.  If you then discount the small percentage actually read by the minute percentage managers actually attempt to implement, you begin to understand deforestation.

Our text for today, however, is, I believe, an exception.  A decade after it was published, it has staying power, and if  you're not familiar with it, my purpose here is to remedy that.  "It" is The Balanced Scorecard:  Translating Strategy into Action, by Harvard Business School Professor Robert Kaplan and his colleague David Norton.

Caveat lector:  The Balanced Scorecard reveals its quasi-academic roots in a modest degree of indulgence in jargon and overly complex non-Anglo-Saxon phrases to describe intuitively simple concepts; but it's worth going back to the primary source, as it were, to fully understand the insights on display. 

The starting point is two-fold, and simple:  First of all, there is more to measuring organizational performance than the purely financial metrics we're all familiar with.  Intangible relationships, professional development and satisfaction, prestige and esteem, for example, are all genuine elements of a "high-performance" firm.  Thus senior management should strive to give the firm a "balanced scorecard"—one incorporating more than one-dimensional financial measures.

Second, once the "balanced scorecard" is constructed, you need to move from using it as a measurement tool to using it as a managerial tool.  Professional development being short-changed?  Client satisfaction not being rigorously and unblinkingly evaluated?  Now that you know, you need to do.

That's The Balanced Scorecard in a nutshell.

Now, ten years later, The Harvard Business Review interviews Kaplan and we learn how his thinking has evolved.

Evidently, his goal is to help explain how to make the high-level concepts in the original book concrete, operational, and programmatic. 

He starts by observing that every high-functioning organization seeks "synergy" between its parts, but that achieving that "require[s] more than a concept and a strategy."  It requires, in a word, "alignment:"  Alignment between the high-level strategy and the way the firm actually operates and gets stuff done.

How do you achieve that Holy Grail?  (Lawyers will like this answer.)  By processes, carefully designed and faithfully implemented.  The alignment discipline should be:

• cyclic (think budgeting cycles);
• top-down driven;
  • from executive committee/managing partner
  • to practice group leaders
  • to partners
  • to associates
  • and to staff

Kaplan claims, not without justification, that "Organizations that master this process can create competitive advantages that are difficult to dislodge."

In the interview, Kaplan, ever the Harvard Business School professor, proceeds to a case study, of a firm called Sport-Man, Inc., and how it evolved from a waterproof work-boot manufacturer in the 1920's to the supplier of choice for boots for the US Army in WWII to a mall-saturating retail giant in the late 20th Century.  Suffice to summarize that, using the balanced scorecard, Sport-Man was able to pull out of a saturated-marketplace threat to its competitive position, and slump, in the mid-1990's by embarking on its first diversification effort in 30 years.

But back to the premise:

• Organizational performance cannot be summarized in the unitary dimension of $$; and
• Once you define what the other, less tangible, factors are (the "balanced scorecard"), you can not just measure them but manage by them.

If you delve into the original, you should also know there's a sequel published in 2000, The Strategy-Focused Organization.  I haven't read, and cannot vouch for, the latter.