Frequently Asked Questions about Balanced Scorecard and Performance Management

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What is Balanced Scorecard?

The Balanced Scorecard is an approach to performance measurement that combines traditional financial measures with non-financial measures. This approach provides managers with richer and more relevant information about the outcomes they are targeting and the activities they are managing, increasing the likelihood of organisational objectives being achieved. In this FAQ 2GC provides an overview of the Balanced Scorecard and describe how it is designed, implemented and used.

What is a Balanced Scorecard Audit?

This FAQ describes how the intended use of a Balanced Scorecard will influence the type of Audit approach that you should use. It also gives some pointers as to how to go about carrying out such an audit.

What is a “state of the art” Balanced Scorecard design?

Since its introduction, Balanced Scorecard has grown from being a tool for organising measures to being a strategic management mechanism. It has evolved in terms of design characteristics, design processes and usage patterns through three stages of development into what 2GC now refers to as 3rd Generation Balanced Scorecard. In this FAQ 2GC outlines the evolution of Balanced Scorecard design methods over the past two decades, and highlights the characteristics of best practice Balanced Scorecard (3rd Generation).

What are the main benefits of a Balanced Scorecard?

The potential benefits of a Balanced Scorecard depend on what it is to be used for. Simply having a Balanced Scorecard is not enough - the Scorecard will only be useful if it is applied correctly. Although many different types of organisation are using Balanced Scorecard, in many different formats, there are two distinct applications: Management Control and Strategic Control. Although visually similar, these two applications of Balanced Scorecard require substantially different design and development processes, and provide different benefits to a management team. 2GC summarises the benefits of well-designed and implemented Balanced Scorecards of both types.

Is there a presentation I can use to communicate Balanced Scorecard ideas inside my organisation?

Various presentations on the Balanced Scorecard are available from the Resources section of the 2GC web site, and from other sites on the internet. This FAQ provides links to these sites and the relevant presentations, plus brief descriptions of the presentations themselves.

Where can I find out more about Balanced Scorecard?

A wealth of information on Balanced Scorecard is available from multiple sources: books, articles, papers and web sites, including the 2GC FAQs. Here, 2GC offers an overview of the most useful sources of Balanced Scorecard information, based on our ongoing research into the topic. Includes recommended readings, and summaries of nine Balanced Scorecard related web sites that rate highly in our Weblinks database. More extensive lists can be found in the Resources and Research sections of our web site.

Can Balanced Scorecard be linked to other management processes?

One of the strengths of the Balanced Scorecard is its ability to work well in conjunction with existing management processes. 3rd Generation Balanced Scorecard in particular is typically used as the centre of a strategic management system as it provides an easy-to-use mechanism for the selection and co-ordination of other management tools being applied in the pursuit of strategic goals. In this FAQ 2GC examines how four common management processes can link with the Balanced Scorecard: SVA & EVA; the EFQM Business Excellence Model; Activity Based Costing; Budgeting.

Can I use measures from other organisations to build my own Balanced Scorecard?

When designing Balanced Scorecards for the first time, organisations often express an interest in examining measures chosen by other organisations in the same industry, aiming to adopt these into their own design. In this FAQ, 2GC examines the topic of measure selection and concludes that while organisations in particular industries  are likely to select some measures that are similar (mainly process measures), they also tend to identify a number of measures that are not (e.g. strategic measures). This is a reflection of differences in their long-term goals and in the specific issues they face, despite being in the same industry. This highlights the need to apply a robust approach for measurement identification, unless measures are chosen for benchmarking purposes only.

What Balanced Scorecard software is available and what does it cost?

There are currently about forty different software packages available to support the reporting of Balanced Scorecard measures, excluding general-purpose software (e.g. Spreadsheets such as MS Excel, or Groupware such as Lotus Notes). Deciding what (if any) software is best for any given situation is not easy. In this FAQ, 2GC describes features and factors that should be considered, and attempt to give a broad overview of the software that is available. For a more detailed listing see the Software Vendor List on this 2GC web site.

How can I maximise the chances of successfully implementing Balanced Scorecard?

The practical value of a Balanced Scorecard can only be realised if it is successfully implemented. In this updated FAQ, we discuss four things to consider on when you are planning the design of a Balanced Scorecard, each of which if done well will improve the chances that your Balanced Scorecard will deliver its full potential in your organisation.

How can HR and other staff functions benefit from 3rd Generation Balanced Scorecard?

Staff functions are often responsibility for many of the corporate initiatives selected to deliver an organisation’s strategic objectives - yet staff functions have limited control over the delivery of these initiatives. In this FAQ, 2GC looks at the extent to which 3rd Generation Balanced Scorecard can enhance the ability of HR and other staff functions to manage the delivery of key strategic objectives.

Can I apply Balanced Scorecard in my not-for-profit/public sector organisation?

Balanced Scorecard remains very relevant to the not-for-profit sector because organisations therein need to address management issues that are generally very similar to those seen in commercial entities. From its origins in the private sector, Balanced Scorecard has evolved to become a useful tool equally applicable to not-for-profit organisations, state owned companies, government departments and even internal functions within commercial organisations.

Can I apply Balanced Scorecard to my small business?

The success of any business ultimately relies on its ability to fulfil shareholder expectations, typically through the delivery of related strategic goals. Because Balanced Scorecard helps managers to articulate and track delivery of the organisation's strategic goals, the tool is useful to businesses of any size. But while the benefits of Balanced Scorecard are similar in large and small businesses, there are important differences in how the tool should be implemented. 2GC offers a brief explanation of these differences and describe how the ideal implementation approach is therefore likely to vary.

Cascading Balanced Scorecards

The management brief "Cascading Balanced Scorecards" looks at one of the most challenging issues faced by organisations implementing Balanced Scorecard - how to develop more than one! The challenge is how to do the design quickly, efficiently, and in a way that ensures all the Balanced Scorecards are 'aligned' with each other and with the organisation's goals.

How do I create a strategic Balanced Scorecard?

In developing a Balanced Scorecard the biggest challenge is deciding the most relevant measures to include - particularly for Scorecards to be used for strategic management purposes. In this FAQ, 2GC outline the eight steps your Strategic Balanced Scorecard design and implementation process should follow and explore how best to deliver these steps - what to focus on and who to involve in the design process.

How do I link Corporate and Individual Performance Management Systems?

Corporate Performance Management is ultimately about triggering changes in organisational behaviour that result in improved performance. Yet organisational behaviour is the collective consequence of the behaviour of individuals.  While much can be done at the organisational or corporate level – through decisions about investment priorities and such like, most improvements rely eventually upon one or more people choosing to change the way they carry out their work for their organisation. This Management Briefing looks at the links between individual and corporate performance management – in particular at ways of aligning goals and incentives at the individual level with those of the organisation the individual is working with and for.

How do I create a Balanced Scorecard for Operational Managers?

Creating a Balanced Scorecard for management control purposes involves the selection of a set of key measures that will provide management with a richer source of performance information than pure financial data. 2GC outline six steps that a Balanced Scorecard implementation of this type should include and explore how best to deliver these steps - what to focus on and who to involved in the design process.

Setting Targets in Performance Management Systems

This 2GC Management Briefing looks at target setting within the context of performance management. Difficulties in setting targets are a common problem encountered during the creation of a performance management system, and are hard to resolve. Without target values the utility of a performance management system is massively reduced. This briefing has two components. First a discussion of some of the key issues relating to target setting. Second, some guidance from 2GC on ways and means of approaching the target setting activity.

What is “Accountability” for Performance?

Accountability exists when a managers take personal responsibility for, and commit to organisational goals. Managers who feel accountable for results are more likely to deliver results. There is a presumption of a causal relationship; that building strong accountabilities is an enabler of better performance. Nevertheless, accountabilities are weak in many organisations, particularly in the public sector. Why is this desirable quality in short supply? In this FAQ Answer, 2GC outlines four factors that underpin real accountability. This FAQ answer describes these factors, and some ways in which they, and so accountability itself, can be developed and strengthened.

What is “Strategic Control”?

Core to much of 2GC’s work is the idea that managers can control how an organisation pursues its strategic goals. This process of articulating and acting upon strategic goals is generally known as “Strategic Control”. Strategic Control theories have had a big influence on how strategic Balanced Scorecards are designed. In this FAQ we introduce the concept, and explain why the design methods adopted for strategic Balanced Scorecards needs to be different those used to Balanced Scorecards developed for other purposes.

This topic was covered in one of the first FAQ Answers 2GC posted to the web, back in 2000. This version is an updated and rewritten version of the original, and reflects some of the developments in thinking around the topic that has taken place over the last ten years.