Knowledge Exchange

Do Scorecards Add Up? by Michael Koscec - Entec Corporation - Friday, December 05 2008

Do scorecards add up? While most of corporate Canada uses these management tools, few people think they actually work. Why?

An article in the May edition of CA Magazine by Robert Angel and Dr. Hubert Rampersad points out that scorecards rarely achieve sustained financial improvement breakthrough.

The article does not argue that balanced scorecards are fundamentally inappropriate as management tools. Quite the reverse, it supports the philosophy of balanced scorecards — but with a modified approach to implementation that has been proven to produce better results. Poor execution rather than the underlying concept is seen as the cause of the apparent performance shortfalls. Organizational scorecards need to be aligned with individuals’ scorecards to turn the balanced scorecard into a powerful tool for sustained organizational performance.

Research was conducted in late 2004, talking with more than 50 Canadian medium and large organizations. The overwhelming view seemed to be that balanced scorecards can be worthwhile in clarifying an organization’s strategy and that if this can be accomplished, improved results should follow. A few companies stated categorically that scorecards have made a positive difference in their organization’s financial results. A typical statement was, “We did not meet our financial goals previously, but since implementing our balanced scorecard, we have now met our goals three years running.”

On the other hand, a larger number agreed with the statement, “balanced score-cards don’t really work.” Comments included: “It became just a number-crunching exercise by accountants after the first year;” “It is just the latest management fad and is already dropping lower on management’s list of priorities as all fads eventually do;” “We found it very complex to implement;” and “If scorecards are supposed to be a measurement tool, why is it so hard to measure their results?”

There is a pervasive structural and cultural issue that impedes improved financial performance, and the aligning of individuals’ personal goals and ambitions with those of the organization, a prerequisite for sustainable culture change. Alignment means working through core values and critical success factors to link the organization’s vision, mission and core values on the one hand with the individual’s personal vision, mission, and core values on the other.

Traditional scorecard implementations tend to be insufficiently committed to learning and rarely take the personal ambitions of employees into account. Without a set of rules for employees that addresses continuous process improvement and the personal improvement of individual employees, the experience is that too little employee buy-in and insufficient change in the organization’s culture underlies balanced scorecard disappointment. The result, experienced in so many scorecard implementations, is that any improvements tend to be superficial and temporary.

Frequently in such cases, management’s efforts to improve performance were seen as divisive, viewed by employees as aimed at benefiting senior management compensation plans and fostering a “what’s in it for me” attitude among the employees.

Bringing people involvement into scorecards is a step-by-step process that not only involves individual buy-in but also stimulates individual and team learning. Given that the scorecard relies so heavily on knowledge that quickly becomes obsolete, an integrated approach to organizational improvement, development and learning is a prerequisite for scorecard success. The role of the finance department in this is crucial. While the balanced scorecard encompasses the entire organization from a human capital and operational viewpoint, the finance department is uniquely placed to drive the measurement of results. This is very timely, as CAs are finding themselves in the spotlight as leaders in managing and resolving performance exposures along with risk.