Balanced Scorecard

Balanced Scorecard (pdf-file)

1. What is a balanced scorecard?

The balanced scorecard originally came into being at the beginning of the 1990s as a tool for implementing strategies in day to day business. Two Americans – Robert S. Kaplan and David P. Norton – developed the idea. “Translate strategy into action” was their motto. Their approach could not be simpler.

Measuring and evaluating performance in businesses is too one-sided and unclear.

  • One-sided, because we primarily look at financial performance, such as turnover, profit and utilisation of capital. However, turnover, profit and capital utilisation only tell us whether we were successful in the past – or not. They do not tell us about building close customer relationships, the target-oriented approach of committed employees through learning and growth, the effective consolidation of internal business processes, guaranteeing stable financial situation to ensure financial soundness with respect to investors in the long term.
  • And unclear, because we are flooded by multiple ratios and can no longer differentiate what is important from what is not. Why do we not do the same as in the world of sport? All the essential data are displayed on one single display board (in the stadium) and on one scorecard (e.g. in golf). Thus at a glance we can see where we are, which tasks have already been completed and what remains to be done.
That is how the idea of the scorecard, the “clear scorecard” was born. And given that not only the outcomes, but also the actions which lead to success are important, all of the major aspects (referred to by Kaplan and Norton as “perspectives”) of a business should be presented in a “balanced” way – precisely as the balanced scorecard.
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Fig. 1 Balanced scorecard according to Kaplan/Norton with 4 future perspectives

In the mid-1990’s in this basic form of the combination of

  • objectives
  • ratios
  • targets and
  • initiatives


for the four perspectives / development areas / future perspectives

  • finances
  • customers
  • internal business processes and
  • learning and growth


the balanced scorecard became known to the wider public also in the German speaking countries.

(In the course of the practical implementation it turned out that the German word “Perspektiven” was not always understood – particularly by “non-controllers” due to its ambiguity. As it was the development of future prospects in terms of shaping potential that was meant, the term “development areas” was also introduced.)

2. The tasks to be fulfilled by the balanced scorecard

While using the balanced scorecard we want to transform strategies into action. That is its real mission. This is how this concept is to overcome the serious weak point of many others: the fact that strategic objectives are not embedded in day to day business life.

2.1 Defining objectives

The balanced scorecard fulfils its mission mainly because it gives our objectives a clear structure.
In most cases this is usually done by drawing up a “strategic matrix”, which can help us to choose from amongst a wide variety of possible actions those that appear to be the most strategically justified.

The mission statement and main objective form the “single roof” under which we wish to place all our activities. These should be derived from the philosophy and culture of the business to the greatest possible extent and describe a business’ purpose (mission) and target orientation (vision) for a clearly defined period (strategic horizon) (cf. also the “Strategische Planung” [Strategic Planning] statement of business).

The mission statement and main objective should help us answer the question: “Why are we a business and what sort of a business are we?”

In this context we want to use the mission statement to show which image primarily customers should have of us:

  • What could induce customers also in the future to spend their money on our services?
  • Who is actually to be our customers in the future?
  • What are our customers' criteria of success (the benefit that they gain from it) – with reference to the services offered by us?
And with the main objective we want to make it clear primarily to the employees in the company what we consider to be the potential, which is crucial for our sustainability in the near future and which we wish to develop.

Using the development areas / perspectives we describe the most important potentials (possibilities and capabilities) to be developed for shaping our future. In this context we should not have a schematic approach, but rather take into account the specific conditions of our business. This already begins at the stage of identifying the development areas / perspectives. Who is the customer of a pharmaceutical company for example: the patient? The physician? the pharmacist? the health insurance fund? Here it can be useful to define four “customers” or “partner areas (perspectives)” to properly capture strategic goals.
This also applies to the number of development areas / perspectives. In practice we find examples with three just as much as with six or seven development areas / perspectives. It is always a question of the usefulness for practical action – and not of “executing” a formal diagram!

 

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Fig. 2 Strategic options matrix

Using the strategic themes we define the most important tasks that we want to master in the years to come. This can be developing a new area of business or reorganising the sales organisation or restructuring the whole organisation, for example. In this context we should not include too many strategic themes in order not to get bogged down.

The option matrix provides us with a “strategic co-ordinate system”, which we can use to search for suitable goals and actions for all the major development fields (a combination of strategic theme and development area / perspective). We must then transfer such strategy- focused actions to suitable structures in order to be able to organise work effectively. We have tried and tested structures at our disposal for this purpose, for example projects. The preparation and controlling of projects is consequently closely linked with designing a balanced scorecard. However, they are not its subject matter and will therefore not be dealt with further in this statement.

At the same time the strategic co-ordinate system allows us to verify whether existing initiatives or projects or new ideas are target- oriented or not. However, this is contingent on our consistency: if we cannot integrate an initiative into the co-ordinate system then we have to decide whether we want to omit it or allow ourselves to include it as a “luxury” or if the matrix has to be redesigned! Without the courage to take decisions even the best strategic co-ordinate system is not much use to us.

A further point should be taken into account in connection with the formulation of a strategic goal system: the balanced scorecard is not suspended in a vacuum. It cannot transform strategic objectives into actions without paying attention to the constraints or degree of freedom that put limits on our actions. The top management of a corporation with global operations will develop other goal structures to the management of an owner managed medium- sized business. And they will have to ask different bodies (supervisory boards, management boards, shareholders meetings) or institutions (banks, state organisations) for consent.

This applies analogously to the objectives of strategic business units or areas / departments within larger enterprises.
And at the same time we have to come to an understanding about the subject matter of the balanced scorecard. The mission as originally formulated by Kaplan and Norton consisted in translating strategies into concrete actions. Since then the name “balanced scorecard” also subsumes overcoming operational problems or designing major projects. These tasks should, however, be strictly separated, as mixing them up would be counterproductive.

2.2 Measuring achievement of objectives with ratios

Designing an option matrix for strategically goal- oriented actions is only one aspect dealt with by the balanced scorecard. The other consists in the consistent application of relevant ratios in order to be able to measure the achievement of objectives. "You can't manage what you can't measure!"  

In this context there are two different points of reference: 

  • On the one hand, we are dealing with the concrete actions of the stakeholders. We want to get from a given ACTUAL state to a desired TARGET state.
     
    Concrete action requires concrete goals. General targets such as "12.8% return on capital employed" do not help much here. Firstly, because most managers and employees cannot understand them and secondly because such targets do not say anything about the concrete actions that are needed to fulfil them.

In these terms the balanced scorecard requires more specific ratios that are directly linked to particular activities in order to guide the actions of people involved in the processes of producing and marketing goods and services. Here the ratios predominantly support communication on the effective organisation of joint work.

  • However, using specific ratios alone to manage concrete processes is not enough. In today's work sharing world we normally use many resources together with others. These can be raw materials, money or  " just" time, which we devote to particular tasks. Decisions about the distribution of these means - especially if these are scarce resources -are taken by people who are not directly involved in the processes subject to change: top management teams of a group, supervisory boards, bankers or analysts, for example. 

And due to the fact that these persons are not involved in the processes - their responsibility is focused on the distribution of resources and not on their concrete consumption - they need reports, which are as clear as possible, so that they can get an idea of the course and outcomes of our actions and take decisions on that basis.  

In this context the balanced scorecard predominantly requires ratios linked to the use and utilisation of the applied means as well as comparison (benchmarking) with other business units. The actual, concrete actions are not the main focus here. 

The effectiveness of the ratios of a balanced scorecard depends on a large extent on how far they successfully deal with both aspects. Only when we combine both aspects do we obtain a universal tool for shaping the sustainability of our business.  

3. The principles of the balanced scorecard

The following principles should be followed when drawing up and implementing a balanced scorecard:

3.1 Consistent focus on objectives

Consistent focus on objectives – with reference to putting goals into practice –primarily means that we understand and take into account the difference between operational and strategic action.

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Fig. 3: Focus on objectives

We generally associate operational with short-term and strategic with long-term. Operational matters must be dealt with immediately, strategic issues can wait. Unfortunately, this is a fallacy.

Operational and strategic matters are not questions of time scale. Both have something to do with the potentials that are available to us.

  • Operational issues refer to the utilisation of the available potentials, e.g. completing orders. Tangible results are the outcome, which in most cases result in money inflow.
  • Strategic issues mean developing new capacities, which will result in money inflows (hopefully!) in the future. In this context only an inflow of potentials takes place, not yet a cash flow (cf. also the statement “Wertorientierte Unternehmensführung” [Value- oriented business management].
Consequently, we should only use operational ratios, such as turnover, profit or utilisation of capital to measure the goals of strategic initiatives if we are aware of the associated incongruities.

Example:

Let’s take for example the objective: “Increase the share of new customers”, for example. Usually, this is measured using the share of turnover, although in many sectors often a long period of time elapses between the initial contact with a prospect and the first turnover– sometimes up to three years. Would it not make more sense to use “Number of meetings with prospects” as the ratio for related strategic activities, as the relationship between the initial contacts and customer acquisition is known in all sectors?

3.2 Balanced involvement of all stakeholders

Objectives are put into practice by people– not by ratios! In this context all the major forces in a company should be integrated into the definition of goals and their implementation in a balanced way by means of a balanced scorecard.

However, in order to prevent the situation where the numerous actions of the often wide variety of people result in chaos, the stakeholders need specific, that is, measurable objectives that facilitate their co-operation. Ratios, which facilitate a defined setting of goals help with this. These are ratios, which are designed in such a way that we can use them to measure the course of actions or outcomes with reference to the targeted goals.

We refer to this approach as the “OAR principle” (Objective – Action – Ratio). The OAR principle does not only apply to actions in the narrower sense of the term. It applies to each set goal within the scope of the balanced scorecard – strategic themes, development areas / perspectives, actions and projects. Due to the need to define measurable ratios we have no choice but to be specific about what we want.

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Fig. 4: Management with ratios – the OAR principle

3.3 Combining simple structures

Combining simple structures first and foremost means: remaining understandable. It is not much use to us to reflect the complexity of the real world as closely as possible if the models created on this basis can only be understood by a handful of experts. If we want to take people with us on our strategic and operational path then we have to make ourselves understood.
 
For this purpose we need simple, clear structures, even if “simple” means also simplification and- consequently- lack of precision. As the saying goes “It’s better to be 60% correct than 100% misunderstood!”

3.4 Transparency with ratios

Here emphasis is placed on the word “transparency”. However, in this context we should differentiate for what purpose and for whom the transparency is intended:

  • With respect to actions it is predominantly a question of translating the set goals into concrete terms. Thus first and foremost this refers to “inward transparency” – transparency for the persons carrying out the actions.

    And it is also about self -controlling. This is because these are our own, jointly selected objectives, the achievement of which we wish to measure using corresponding ratios. Such ratios must be understandable, specific and easy to follow for the business team.
  • With respect to the distribution of the available resources first of all it is a question of the story that we wish to tell “external” partners about our actions. Ratios can lend credibility to these stories. Thus in this context the main emphasis is on “outward transparency” - on being understood by people that do not directly experience the events within the organisation or the organisational unit.

    At this point we should pay attention to the specific tasks of these people. They mostly take decisions about the division of commonly used resources, such as time and capital. They therefore need ratios that make a comparison between the various “entitled parties” possible in order to facilitate decision making.

3.5 Concentrating on the essentials

Concentration consists in the art of focusing one’s attention on one point. Therefore, concentrating on the essentials means leaving out what is less important or postponing it. The problem is not determining the main focus points, but rather deciding what is to be left out. Having the real courage to concentrate has a decisive impact on the success of a balanced scorecard!

The balanced scorecard is thus not only a tool that generates additional costs. Concentrating on the essentials also makes it possible to save resources.

4. Differences in the practical application of the balanced scorecard

In practice there are many types of balanced scorecards. The differences can basically be linked to three criteria:

4.1 How is the balanced scorecard linked with the company’s strategy?

The name “balanced scorecard” is often equated with a system of ratios. When applied in practice it usually leads to a mere grouping of operational and strategic ratios – particularly with respect to software solutions. Such approaches are in conflict with Kaplan / Norton’s original idea: “Balanced scorecards should not only be collections of financial and non-financial ratios – integrated into four perspectives. The best balanced scorecards reflect an organisation’s strategy.”

However, it is only possible to reflect strategies if an organisation has them! Consequently a balanced scorecard which does not build upon a major strategy only has a slightly clarifying effect. We can avoid this if we formulate a strategy before a balanced scorecard is drawn up before or during this process. If considerable time is required, this is a point in favour of formulating the strategy in advance. A factor supporting the linking with the balanced scorecard is the specific impression of our strategy that we gain in this way.

4.2 How are people involved in developing strategies and in their implementation?

“Translate strategy into action” – this is the task of the balanced scorecard as originally formulated by Kaplan / Norton: the practical implementation of strategy on a day to day basis and developing potentials as our daily task. In this context it is obvious that this depends on how people concerned are involved in the process. And here cases of application in practice differ considerably.

The range stretches from the strict setting of strategic guiding principles by the “boss” or a very narrow circle of selected managers to an open dialogue on individual and common objectives and translating them into a strategy supported by all participants. At one extreme the balanced scorecard is integrated into an environment characterised by hierarchical structures and tends to be reduced to a strategic planning and control system. At the other extreme the balanced scorecard forms a framework for organising open structures around a common goal.

4.3 How is the balanced scorecard integrated into overall business operations and reporting?

The balanced scorecard as a strategic system of ratios is often attributed to controlling. In this way it extends the palette of controlling tools already available, however, it does not serve as a central leadership tool for management.

In this context there are seriously intended “solutions” – using the balanced scorecard to “calculate” the future. For this purpose mathematical links are constructed between the ratios for the actions, the so-called “critical” success factors and the main objective. This can lead to dangerous illusions,

  • because we can actually extrapolate sales, turnover and cost figures or can model with detailed scenarios, however, we cannot use this to understand the development of the potentials, which are needed;
  • because we quickly lose sight of the fact that each calculation is based on assumptions, which are hidden behind coefficients and constants and whose plausibility and constancy are normally not verified;
  • because in conventional mathematical models we assume that there are linear correlations between cause and effect and thus we do not even begin to sufficiently comprehend the detailed complexity of a changing organisation; without even mentioning the delays in terms of time and space;
  • because computer calculations simulate an apparent accuracy and objectivity, which is not provided.


However, we have a tendency to conceal our subjective accountability behind “objective calculations”. The result is setting false courses of action with often disastrous effects. Consequently, we should not succumb to this self-deception.

Kaplan / Norton therefore refer to the fact that in their experience the balanced scorecard does not consist of a system of ratios, but rather it is about every company and institution that has demonstrated the greatest successes and which have built up a new management system using the balanced scorecard. This is a management system, which has enabled them to create a strategy- focused organisation.

The more the balanced scorecard is organically integrated into the overall management and reporting system, the more the practical implementation of a company’s objectives is successful in its customers’, employees’ and partners’ day to day activities.

In line with this the balanced scorecard is a tool for both management and controlling, i.e. its effectiveness is contingent upon the co-action of both areas. The balanced scorecard is to be integrated into controlling as a process in the form of this interrelationship and to be supported by the controlling department.

5. Implementation of the balanced scorecard

The practical benefits of a balanced scorecard are largely influenced by the extent to which its structure corresponds to the character of the business. Companies of technical profile with a traditional function- oriented organisation (for example: businesses in raw resources industry) need a more hierarchically structured balanced scorecard, whilst technologically advanced , knowledge- oriented companies (for example: information and communications industry) would rather benefit from structures that are oriented to the needs of intellectual capital.

5.1 The balanced scorecard in businesses structured more along functional lines

Hierarchically- oriented balanced scorecards place financial capital at the centre of attention. Utilising capital employed is the absolute top objective. In this context the mission, core values, vision and strategy of the organisation (of the business) form the starting point. The strategy describes the "game plan" of the organisation and the balanced scorecard- its implementation. The goals of the people are - corresponding to their function - subordinate to the organisation's goals.

The financial perspective is consequently the top level of a hierarchically structured balanced scorecard. Here the question to be answered is: "How should we act with respect to the shareholders in order to achieve financial success?" The focus is on the definition of goals for growth and productivity and the identification of any sources from which growth and productivity can be obtained.

The customer perspective comes next, and it should describe the value proposition that is made available to the market (cf. the "Kunden-orientiertes Vertriebscontrolling" [Customer- oriented sales controlling] statement). The question is "How should we approach our customers in order to realise our vision?". The description of target customers and their demands is the focus. This must be reflected in the objectives and the corresponding ratios, against which the value proposition and customer satisfaction can be measured with reference to these demands.

The organisation's value chain is presented in the lower positioned perspective of internal business processes (see fig. 5). The value chain encompasses all activities which are needed to create the value proposition for customers and to transform them into growth and profitability for the shareholders. We ask ourselves "In what business processes must we be the best in order to satisfy our customers?" Goals should be formulated for innovation, customer management, operational processes and integration into the environment. In this context it is above all a matter of setting standards with respect to usage characteristics, timeliness and costs, against which we can measure the quality of our processes.

Finally, the learning and growth perspective forms the foundation; it defines the intangible values which are needed to lift business activities and customer relationships to a higher level. "How can we foster our change and growth potentials in order to achieve our goals?" This is about combining development objectives for strategic capabilities (knowledge and skills of the employees), strategic technologies (information systems, networks, etc.) and an activity- oriented atmosphere (motivation, empowerment of employees).

The questions in the individual perspectives should be answered on a theme by theme basis. Kaplan / Norton differentiate four categories:

1. Building up market power, 
2. Increasing customer benefit, 
3. Achieving operational proficiency, 
4. Development to a socially responsible organisation.

Fig.5

Fig. 5: Strategy map (according to Kaplan / Norton)

The steps to generate a balanced scorecard of this kind are usually the following in most cases:

1) First of all the formulated strategy is presented using a "strategy map". The objectives of the organisation are placed in a "grid" (option matrix) consisting of strategic themes and "the" four perspectives. Then the various goals are linked together via "cause and effect chains".

In this context the cause and effect chains first and foremost are meant to communicate the strategy throughout the company and not to construct a "calcuable measurement system".

However, these impart a simplistic illusion of linear interrelationships and hinder the understanding of the long- range effects of our actions. It does make presentation easier at first; however, it can be counterproductive for strategic thinking if we forget about these restrictions.

2) In a second step the objectives from the "strategy map" are transferred to the balanced scorecard perspectives. Here Kaplan / Norton do not recommend mathematical linking together the cause and effect chains for the aforementioned reasons.
For each goal a ratio, ratio targets and mostly quite generally held initiatives are established in order to make it possible to translate them into concrete terms for various structural units in the further course of the process.

3) In a third step projects and action programmes are derived from the balanced scorecard initiatives. Here the projects are strictly linked to the hierarchical structure of the perspectives (and thus to the functionally linked hierarchical structures of the enterprises).

Fig. 6

Fig. 6 Integration of projects in the balanced scorecard
(according to Kaplan / Norton)

However, this finance- oriented structure does not work for non-profit organisations. Therefore, in such application scenarios modifications must be made by placing mission at the top of the balanced scorecard hierarchy. Otherwise, the path is the same. Also, the subordination of personal goals to the organisation's goals is retained.

5.2 The balanced scorecard in more process oriented businesses

In more process-oriented, technology-rich businesses intellectual capital is the focus of attention. It is produced by:

  • the people operating within the company (the knowledge and skills of the employees as well as the culture of interpersonal relationships)
  • the people associated with the company (the type of relationships with our partners (customers, suppliers, investors, etc.) and- in consequence- access to their knowledge and skills),
  • the company's structures (to link up the possibilities and capabilities of the company and the knowledge of people with the capacities of the machinery / means of production, raw materials, communications devices and organisational structures), and
  • the social resources deployed by the company (e.g. the public education system, the Internet or the environment, which also represent potentials for us).

Intellectual capital is constantly gaining importance as a factor in our global economy. Financial capital on its own is no longer the engine of growth, but also knowledge and the ability to apply it. Against this background the personal goals of people involved form the starting point for a company's or an organisation's balanced scorecard.

Fig. 7 Integration of individual goals

Starting from their individual strengths and wishes people seek values and goals that they share with other employees - and values that shape the real culture within the business. This mostly occurs completely by instinct, it is hardly ever a conscious process. And the degree of commonality experienced in this context has a decisive impact on what role we allot to the company in our lives.

It is at this point that the decision is taken to what extent we are committed to the company or not as the case may be.

As a consequence this point is very important for every company policy, which relies on the commitment of the people involved!

It is like a band, for example a jazz band: all the musicians may be fairly good as individual artists, however, the music is only created if they play together. Thus something really special comes into being, something that is greater than the sum of its parts. And all the players quickly understand that their own success is dependent upon the quality of their cooperation. As long as this remains to be the case, they will give their best to their organisation with respect to the skills they can contribute. This is the basis for the success of the jazz band; personal commitment represents an important competitive advantage.

Technology-rich businesses should likewise  provide their creative and committed employees with a stage where they can achieve and present successes. Thus companies can bind the part of intellectual capital that employees hold in the form of acquired qualifications and expertise. Thus knowledge "does not go astray".

Ensuring financial stability in the long-term in this context becomes more of an existential basis than an objective. Naturally, the principle still applies that more money can be spent than money flows in. And if investors are needed for this, then they can expect a commensurate return on their deployed financial capital.

However, the goal of intellectual capital consists in more than the utilisation of deployed financial resources. First and foremost this consists in providing the space for developing the persons involved and the structures used by them. Accordingly, technology-rich businesses tend to have open structures, which are oriented to tasks and process chains and not to functional hierarchies.

In this respect the balanced scorecard should not show any hierarchical structures for such companies, to which the goals of the people involved must be subordinated. On the contrary, people structure the balanced scorecard fully in line with the specific characteristics of their own purposes and processes. And then there is no methodological difference between the balanced scorecard of a profit- oriented and a non-profit organisation.

The generation and implementation of such a balanced scorecard occurs in six steps:

Fig.8: Drawing up a balanced scorecard for a more of a process-oriented business.

The six steps in detail:

I. Formulating the mission statement and main objective
The mission statement and main objective should be formulated so that as many employees as possible can identify with them. To achieve this we can try to put the commonalities down on paper: by formulating values (e.g. for a logistics company that has split off from a group of companies:  "Independence, reliability and sustainability are the inalienable values of our business."); or a mission ("The supreme purpose of our business is to provide and further develop an effective logistics network on the European scale"); or a vision ("The name of our firm is the European embodiment for an effective logistics platform, because we set the standards").

Apart from these commonalities we must, however, also take into account the specific working conditions under which we operate. It is only then that we can formulate a mission statement and main objective, which is feasible and therefore acceptable to the majority. This makes it possible to generate a balanced scorecard which motivates a large number of employees to be committed.

II. Developing strategic co-ordinates
The orientation to personal commitment of all stakeholders as outlined above is continued when drawing up the strategic co-ordinate system.

Here the focus is on the joint "construction" of development fields based on strategic themes and development areas, which most effectively contribute to producing a mission statement and main objective. This means that we should not let ourselves be confined by the targets with respect to the number and content of development areas and strategic themes. However, it should always be taken into account that restricting ourselves to only a few development areas (3 to 5) and strategic themes (2 to 4) helps us to concentrate on the essential focal points as part of our practical actions within the period to be organised.

III.  Completing the strategic co-ordinate system with action ideas
The "development fields" defined when establishing a co-ordinate system serve as a point of reference for deriving specific actions and grouping them to form overarching projects. In practical terms in brainstorming sessions one should try to allocate goal- oriented actions to these development fields, which provide both horizontal (the development area) and vertical (the strategic theme) support. The OAR method described above supports the goal-oriented description of actions and helps to achieve mutual understanding. Usually a few hours of concentrated work result in more than 100 ideas for goal- oriented actions.

Fig. 9 The strategic co-ordinate system of Logistics-Service AG

IV.  Structuring and implementing strategic projects based on action ideas
Whether 50 or 250 OARs were formed they should be summed up in order to be able to feasibly organise activities. Naturally this can be done based on pre-set criteria (e.g. spheres of responsibility). In practice, it has turned out to be more expedient to combine action ideas "that go together" in groups, which can be used as the basis for strategic projects that are to be structured. These action groups are initially the result of a brainstorming session and still need to be "moulded" or redesigned so that they can be tackled as a strategic project. According to proven practice the task of this redesigning should be given to small interdisciplinary teams. Here classical project management techniques should be used. The controlling department is to be involved, too, as the relevant project budgets need to be set up before a final decision on the implementation of these projects is taken.

An analogous approach (steps II to IV) is advisable with respect to propagating the balanced scorecard in other areas of the business, in which the mission statement and objective should apply uniformly throughout the organisation.

V.  Reporting with the balanced scorecard
Simultaneously, a reporting structure is developed. Within this structure ratios are summed up in a report scorecard, which first and foremost reflects "inwards" the achievement of strategic objectives of sectors of the business. Effective feedback can be developed on the basis thereof, which facilitates sustainable learning.

Fig. 10: Internal report scorecard of Logistics-Service AG

As reporting structures primarily support decision making on the effective deployment of resources in a business, we should also include operational ratios in addition to strategic ones in the report scorecard. It is more useful if these are ratios, which reflect the result of utilising potentials, which have been developed in the course of strategic actions.

For individual areas of the report scorecard notes should be provided according to conventional controlling practice, which present our positions and aims with respect to the ratios applied. Further report scorecards support traditional reporting "outwardly" for investors, bankers, supervisory boards, etc.

VI.  Organising the learning process
No business operates in a vacuum. As a consequence the changes initiated by us evoke reactions everywhere. And we must react to changes in our environment - that is we must be willing to learn.

Here it is not a question of whether we are implementing projects "correctly", but also rather whether we have initiated the "right" projects and whether we consider the right sub-objectives to achieve our main objective. "Doing the right things right!" And even if we apply as much expertise in the process of formulating our strategic goals as in their implementation, we should still ask ourselves at least once a year whether we need to react to altered environmental conditions (we have to, as surely at least a few strategic projects have already been completed!).

Organising this learning process, beginning with supporting the strategic project management through the organisation of workshops up to reworking the balanced scorecard system of objectives is the crucial task of the controlling department.

6. Conclusion and recommendations for controllers

If the balanced scorecard is successfully integrated into day to day business life, it can be developed into a comprehensive and universal tool. It is a tool that provides all activities with a strategic framework and ensures more clarity and consistency for all parties involved to help them in formulating, communicating and implementing their strategy. It supports implementation, which makes it possible to understand strategic action in terms of it being a daily task and to realise it as such, as well as to link it with operational action. 

In line with this, Kaplan / Norton place their balanced scorecard within the framework of an overarching concept of "the strategy- focused organisation". This impacts its content as both a management and a controlling system: 

  • Design your balanced scorecard on the basis of a communicated strategy - and at the same time use the balanced scorecard to communicate your strategy. Make it clear to management in advance how much the effectiveness of the balanced scorecard tool depends on its being embedded in strategy. 
  • Design your balanced scorecard jointly with all major forces within a company. These do not only include the entire management team, but also innovative "lateral thinkers", members of the works council or "friends of the family", who bring less "company insider's blindness", but instead "the view from outside".
  • Design your balanced scorecard using your own ideas and those of your colleagues. In this context moderated workshops and external help can be useful during implementation. However, the content and the "emotion" should always come from the stakeholders themselves. This is because they will have to live with the consequences - the external party will no longer be around once they have finished their assignment. 
  • Design your balanced scorecard in line with the specific circumstances of your business. Success is born out of the combination of quality and acceptance. Therefore, design your balanced scorecard so that it can be accepted by all the parties involved. This also includes convincing the management of the advantages of the balanced scorecard tool. The balanced scorecard will make more rapid inroads into day to day business life, the more concretely it is understood and experienced as a practical competitive advantage. 
  • Design your balanced scorecard in clear structures with respect to goals, the choice of appropriate actions, the organisation of practical work and reports. The balanced scorecard tool can only display the effectiveness that you anticipate from it if there is the interplay of the various structures. So pay attention to transparency.
  • Design your balanced scorecard with the courage to be consistent. Transparency only makes sense if it leads to decisions. Therefore use your balanced scorecard in such a way that decisions can be taken and implemented. Here this is a matter of decisions about changing your company as well as distributing the resources needed for this purpose. And take into consideration the fact that decision makers must understand what they are supposed to decide upon. You also have to take into account that people that take decisions about concrete actions operate within a different context to those that have to decide about the division of jointly used resources.   
  • Design your balanced scorecard so that it can be integrated into your management and controlling system as seamlessly as possible. This includes project management and controlling just as well as flexible planning and budgeting and the relevant strategic and operational reports. In this context ensure that the ratios in your reports do not become self evident and a formal shell. The balanced scorecard is more than a measurement system. However, ratios can force us to say what is to be achieved in concrete terms, as these are measurable outcomes. And if these are linked with accountability, they foster practical action in terms of mutual objectives.
  • Design your balanced scorecard with enduring patience; as all experience to date teaches: the introduction of a balanced scorecard is relatively easy to follow; however, living with the balanced scorecard is a complex, continual process. In this process you should not link the ratios with the incentive system too early. For this first of all sufficient experience and above all trust in the balanced scorecard are needed.   
  • Design your balanced scorecard so that there is enough time for communication, as only this can serve as a learning basis for the company and the basis for business success.

And above all: Get on with it! 
Do not wait for the ideal circumstances and pre-conditions, otherwise you might wait forever. Put the balanced scorecard to use as soon as possible and learn how to operate with it, in order to better place your company amongst the competition. 

In this context, no-one can guarantee success. You cannot foresee the future. However, you can develop the possibilities and capabilities today, which will put you in a position tomorrow to deal with future risks and opportunities to your advantage. And that is a whole lot better than waiting to see what "fate" has in store.

Balanced Scorecard (pdf-file)