Balanced Scorecard – A Strategic Management System. A case study from Taiwan
“If you cannot measure it, you cannot improve it.” (Lord Kelvin)
The Balanced Scorecard, or BSC, is a strategy performance management tool that helps managers to put in balance four main perspectives (the customer’s perspective, the company’s internal perspective, as well as innovation and improvement). Also, it encourages them to focus on complex cause and effect relationships and on developing a systemic aligned strategy.
Basically, through this semi-standard structured report, supported by design methods and automation tools, managers can keep track of the employees’ performance and monitor the consequences of their actions.
How did the concept appear?
In 1992, Robert Kaplan, together with David Norton, came up with this idea in an article named “The Balanced Scorecard – Measures that Drive Performance”, written for Harvard Business Review. The idea began with the principle: you get what you measure.
If you only measure the financial performance, then this is the only aspect to be improved. By going beyond traditional measures of financial performance, the BSC has offered managers the opportunity to better understand how their company is really doing. These non-financial metrics are important as they predict future financial performance rather than simply showing what already had happened. The above mentioned article describes how current actions can be linked with tomorrow’s goals, focusing, as the authors put it, on the place where “the rubber meets the sky”. It enables companies to track their financial results while also monitoring progress in developing the capabilities and acquiring the intangible assets needed for future growth. The scorecard does not replace the financial measures, it completes them.
However, some literatures have proved that the BSC theory and practice had some limitations, namely five important ones, according to Akkermans and Oorschot: ‘unidirectional causality too simplistic’, ‘does not separate cause and effect in time’, ‘no mechanisms for validation’, ‘insufficient between strategy and operations’ and ‘too internally focused’. In order to address these limitations, they proposed a theory based on system dynamics, which includes “the systems thinking and systems archetype level”. Furthermore, dynamically aligned principles are used in order to diagnose problems and generate solutions for the Balanced Scorecard development. In order to generate these principles and to enhance the BSC long-term effectiveness, dynamic pitfalls and dynamic key success factors need to be set in place:
The dynamic pitfalls of developing BSC:
– The growth driving force is not strong enough;
– There are difficulties in the dynamic strategic alignment;
– There are conflicts regarding the strategic objectives;
– Underinvestment in capacity leads to limits;
– Self-reinforcement feedback loops with time delays leads to an increase in difficulties for resource management;
– BSC’s strategic objectives which formulate the balancing feedback loops with time delays cause oscillation and difficulties in capacity alignment;
– Ignoring the reinforcing feedback loops that cause organizational changes.
The dynamic key success factors:
– Driving the growth engine needs multiple resources allocation and alignment;
– Resource management needs dynamic alignment: investments in capacities and competencies;
– Take into account the dynamic impacts of time delays;
– Use SD to support testing and communicating strategy in order to ease the organizations in experiencing double loop learning from the BSC process.
In order to support these ideas, a study case on the K Hospital from Taiwan was realized. A private medical institution took over this hospital and thus, it became one of the contracted-out public hospital in that area. Its managers attended the “Developing a Learning Hospital Project” (2001-2003) and then invited the authors of “Exploring some dynamically aligned principles of developing a Balanced Scorecard”, formed a consultants team so that they could inquire and review their BSC strategy. Further details regarding the study case and more information about using the dynamic systems with the BSC can be found in the above-mentioned paper, which can also be found among the references.
- Young, S. H. and Tu, C. K (n.d.), Exploring some dynamically aligned principles of developing a Balanced Scorecard
- The Economist (2008), Balanced Scorecard
- Kaplan, R. S. and Norton, D. P. (2007), Using the Balanced Scorecard as a strategic management system, Harvard Business Review