Fixing Your Balanced Scorecard – Part 2

By Robert W. Bradford, President & CEO

Strategic Planning Expert Robert Bradford

Following up our prior discussion, another set of limitations of the Balanced Scorecard includes:

IIa. You are measuring things because they are easy to measure

This issue reminds me of the old joke about the man looking for his wallet on the sidewalk.
Passerby: “Did you lose your wallet here? I can’t see it…”
Man: “No, I lost it in the alley back there”
Passerby: “So why are you looking out here on the sidewalk?”
Man: “Because the light is much better out here.”

There is only one thing to say about this: the easier things are to measure, the harder it is to create real strategic advantage using the measurement. We need to examine the reality underlying our strategy with our measurements, unless we want to see a bunch of obvious numbers without actionable conclusions.

IIb. You aren’t measuring things that really matter

There can be lots of reasons for this issue. Perhaps you are measuring something that has little or no impact on your competitive position. Ask yourself: if ONLY this number improved, would we really be better off? In many cases, the numbers you look at overlap with other numbers. To use a simple example from financial measurements, it’s somewhat redundant to look at both gross margin and net profit, because net profit is simply gross margin minus fixed costs and a few other expenses. I won’t tell you which you should look at in your own company, but I will tell you it’s rare that a company should include both numbers in the five to ten core metrics in a streamlined Balanced Scorecard. This means you need to pick on, understand that it (like all metrics) will have the flaw of not being complete, and move on.

Another reason why companies sometimes measure things that don’t really matter is that the metric chosen makes the company look good. At worst, this can be a case of throwing in a number because it can be counted on to give us good news even when the other numbers are telling us bad news. Again, if the number does not affect your competitive position or your ability to succeed, consider eliminating it from your scorecard.

There is an even more insidious problem associated with measuring things that don’t matter – if this is your company’s problem, you are very likely shying away from measuring things that matter very much. Sometimes this is because managers fear the implications of managing to certain metrics. If managers fear measuring profit per employee, for example, because it might lead to staff reductions, you should be asking yourself whether this fear is useful. There are many industries where staff reductions are a vital strategic management tool – failing to consider them when appropriate can be a major strategic error.

The final points of this analysis will be found in the third installment.

For more information on how to take your strategic planning to the next level please listen to our webinar: Why Isn’t My Strategic Planning Working?