Balanced Scorecard: Is it a Failure?

The Balanced Scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals.

The first Balanced Scorecard was created by Art Schneiderman (an independent consultant on the management of processes) in 1987 at Analog Devices, a semi-conductor company. Art Schniederman participated in an unrelated research study in 1990 led by Dr. Robert S. Kaplan in conjunction with US Management Consultancy Nolan-Norton, and during this study described his work on Balanced Scorecard.

Subsequently, Kaplan and David P. Norton included anonymous details of this use of Balanced Scorecard in their 1992 article on Balanced Scorecard. Kaplan & Norton’s article wasn’t the only paper on the topic published in early 1992. But the 1992 Kaplan & Norton paper was a popular success, and was quickly followed by a second in 1993. In 1996, they published the book The Balanced Scorecard. These articles and the first book spread knowledge of the concept of Balanced Scorecard widely, but perhaps wrongly have led to Kaplan & Norton being seen as the creators of the Balanced Scorecard concept.

While the “Balanced Scorecard” concept and terminology was coined by Art Schneiderman, the roots of performance management as an activity run deep in management literature and practice. Management historians such as Alfred Chandler suggest the origins of performance management can be seen in the emergence of the complex organization – most notably during the 19th Century in the USA.

More recent influences may include the pioneering work of General Electric on performance measurement reporting in the 1950’s and the work of French process engineers (who created the tableau de bord – literally, a “dashboard” of performance measures) in the early part of the 20th century. The tool also draws strongly on the ideas of the ‘resource based view of the firm’ proposed by Edith Penrose (Edith Elura Tilton Penrose was an American-born British economist whose best known work is The Theory of the Growth of the Firm, which describes the ways which firms grow and how fast they do).

Kaplan & Norton’s first book, The Balanced Scorecard, remains their most popular. The book reflects earliest incarnations of Balanced Scorecard – effectively restating the concept as described in the 2nd Harvard Business Review article. Their second book, The Strategy Focused Organization, echoed work by others (particularly in Scandinavia) on the value of visually documenting the links between measures by proposing the “Strategic Linkage Model” or strategy map. Since,  Balanced Scorecard books have become more common – in early 2010 Amazon was listing several hundred titles in English which had Balanced Scorecard in the title.

After his implementation at Analog Devices, Art Schneiderman, in 1999,  wrote the article “Why Balanced Scorecards Fail” where he discusses some of the issues with this deployment, since then there have been improvements in newer generations. The Balanced Scorecard has always attracted criticism from a variety of sources. Most has come from the academic community, who dislike the empirical nature of the framework: Kaplan & Norton notoriously failed to include any citation of prior art in their initial papers on the topic.

Some of this criticism focuses on technical flaws in the methods and design of the original Balanced Scorecard proposed by Kaplan & Norton, and has over time driven the evolution of the device through its various ‘generations’. Other academics have simply focused on the lack of citation support. But a general weakness of this type of criticism is that it typically uses the 1st Generation Balanced Scorecard as its object: many of the flaws identified are addressed in other works published since the original Kaplan & Norton works in the early 1990s.

Another criticism, usually from pundits and consultants, is that the Balanced Scorecard does not provide a bottom line score or a unified view with clear recommendations: it is simply a list of metrics. These critics usually include in their criticism suggestions about how the ‘unanswered’ question postulated could be answered. Typically however, the unanswered question relates to things outside the scope of Balanced Scorecard itself (such as developing strategies).

It’s clear that Balanced Scorecard implementation is a difficult and frustrating ‘journey’ and requires dedicated top-level management support, a dedicated team of change agents, strategic alignment, implementation of improvement initiatives as projects, cultural change management, and a combination of top-down and bottom-up development.

But is it a failure? In the blog, “The Glue” by Jeff Bunting, he writes; “I’ve seen statistics thrown around that between 50 and 78 percent of “Balanced Scorecard” efforts “fail.” Gartner’s latest research reports the number at about 50%, but when you look at the survey targets and numbers, it would be hard to put a lot of faith in that number. I do know — from seeing hundreds of implementations over the last decade and coming in to “clean up” problems — that it’s true that many do fail”

“So without strong numbers on how many of these efforts fail or what failure even means, I’ll go out on a limb and say the primary reason that virtually all such efforts fail: timid, unfocused, or unengaged executives. Usually you can even trace it to a single executive who — if things were different — could not only prevent scorecard failure, but could actually use scorecard to drive true breakthrough improvement. Usually, that executive is at the top of the organization.”