10 October, 2022

Success Factors, Customization, and Limitations of Implementing the Balanced Scorecard

Success Factors, Customization, and Limitations of Implementing the Balanced Scorecard
By: Lotfi Al-Sarori

In our last article of the Key Business Concepts 101 series, we presented the Balanced Scorecard. We explored how it can help companies define and implement strategies effectively through its four main perspectives - Financial, Customer, Internal Process, and Learning & Growth. And how it provides a mechanism to compare actual vs planned outcomes, by identifying objectives, metrics, targets, and relevant initiatives, so that corrective measures can be taken if there are variances. We've also examined the Strategy Map, which links diverse objectives across perspectives.

How can we begin putting the BSC into action?

In this article, we'll delve deeper into the topic and demonstrate how you may adopt the BSC in your own organization, how you can tailor it to your needs, and where its limitations lie.

Factors for Successful Implementation

An organization's BSC implementation will succeed or fail based on how well its employees understand and value the framework. Yet, the backing of management is the single most important aspect in the successful implementation of BSC. Once this is in place, there are a few steps to follow to ensure a smooth rollout.

In 2016, Hepler et al. analysed 21 case studies of organisations in different industries, locations, and time periods and discovered 11 comparable factors for the success of a BSC implementation that need to be executed in eight stages as shown in the Figure below.

Adopted from: Hepler et al

Customizing and Extending the BSC

Due to its flexibility, the BSC can be used in many areas and across many industries. While the four perspectives of Financial, Customer, Process, & Learning are the default and most common perspectives used with the BSC, the framework can be further customized or extended. Practitioners have used the BSC in a variety of ways, depending on business or application area. Besides using it as a strategic management tool, BSC can be used for performance management or quality management, or it can be adapted to be used for other areas such as sustainability and IT management.

For Performance Measurement

The BSC is a trusted method for measuring progress and results. Since it was created to provide a non-financial view on performance along with financial metrics, it can be customized to evaluate previous performance and set objectives with success indicators to monitor future performance of any business area.

In Quality Management

BSC's helpful information makes it a good quality management tool. You can use it to monitor metrics related to process quality, customer service, market share, and employee satisfaction. These indicators can be utilised as early warning signs of organizational performance concerns, allowing timely action to be done.

In Sustainability

One area where BSC has gained popularity is sustainability. There are organizations that put sustainability as one of the perspectives to emphasize and enforce their dedication to sustainability and running eco-friendly operations. Other organizations take it a step further to create a Sustainable Balanced Scorecard (SBSC) to track and manage their business through the lens of sustainability.

For A Specific Area

The BSC can be used for a certain department inside the organization. It can be customized, for example, for the management of information systems or to put a focus on information security in the organization. Similarly, it can be customized for marketing, sales, or administration to be used by these departments to manage their daily operations.

BSC Limitations

As great and useful as the BSC is, like any other framework, it has its limitations. The tool does not have a way of connecting results to their effects in a timely manner or to link performance cause and effect over time. Moreover, BSC does not provide a good way for choosing the most suitable metrics such as running ‘what-if’ scenarios to evaluate possible outcomes. Furthermore, the BSC does not take into consideration the organization’s external environment or other key stakeholders such as suppliers and business partners. 

However, there is no framework out there that can do everything. Companies will need to use an assortment of tools to manage their operations and the BSC is an essential tool to have. Recognizing its limitation will help you understand where it fits. For example, for running ‘what-if’ scenarios, you are better off using a data analytics tool while for the external environment, tools like PESTLE or Porter’s Five Forces are suitable. 

This brings us to the end of our discussion of the Balanced Scorecard. I hope these two articles have given you enough information to think about adopting the Balanced Scorecard in your organisation, and if you are currently using it, I hope you have gained some useful insight into how to make it more effective for you.

See you in our next article of our Key Business Concepts 101 series!

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