About a year ago, a potential client shared some challenges his business was facing. After carefully listening to his concerns I suggested he consider a balanced business scorecard, and explained my rationale. “No, I don’t think I need that”, he said. I see everything going on in my business, and I know how to fix it”. “Yes, I know”, I calmly responded. “The question is do you know how to fix what’s going on in your business that you can’t see?” He paused to reflect on what I had shared then replied, “Thanks, but I don’t think I need one.”
About a month ago I saw that potential client at a networking event. He shared that he had closed his business about 6 months after our conversation. Being a business owner myself I was sorry to hear this, and asked what he thought was his biggest learning from the experience. “I hate to admit it”, he said frowning. “But I really should have listened to you about implementing that scorecard. I just really felt I had a handle on things”.
The Business Scorecard
Since its’ inception almost a decade ago, the balanced business scorecard has been widely used around the world, in all types of industries. It appeals to the CEO because it allows them to see how all the important drivers of their business are performing at a glance. And they are able to use that information to make quick, reliable business decisions with confidence. So the return on implementing a balanced business scorecard is clearly worth the investment. Yet, many small businesses choose not to use one. Why?
I recently spoke with several small business owners who do not use a scorecard and learned three reasons why: 1) they understand the value of the balanced business scorecard, but don’t think they need it, 2) their business is too small to need one, and 3) they just can’t afford the expense. After reflecting on my potential client who lost his business, I believe that other small businesses are missing opportunities to address underperforming areas that can really hurt them. While it may not be necessary to implement a scorecard with all the bells and whistles like a large business; small businesses that do not use some type of scorecard method are taking a big risk.
Although almost three quarters of major corporations have used the balanced business scorecard, only 3 out of 10 achieved the expected benefits from this tool. But this doesn’t mean the tool is ineffective. It means the scorecard was not successfully implemented in their business.
So what can you do to implement a balanced business scorecard effectively if 70% of large corporations failed?
First, you and other key stakeholders in your business must have the right “mindset” about how you will use the scorecard. Second, realize that implementing the scorecard is a process, and a very strategic one. Third, you must carefully identify the unique key performance indicators for your business. Examples include Innovation, Customer Service, Operations, Finance, IT, Processes, Idea Generation, or Human Resources.
The success factors commonly present in organizations that successfully implemented a balanced business scorecard are:
- Know the Role of the Scorecard – it’s to tell the story of your strategy; therefore it is a deployment and communication mechanism that is articulated well.
- Alignment and Integration – ensure each performance driver is linked to the metrics and incentives that will help all stakeholders move in the same direction.
- Implement the Scorecard within 60 days – place a high priority on selecting the right software and reprioritizing existing initiatives, so you implement quickly.
- Include an Improvement Cycle – this cycle must include accountability, challenges to poor performance, and timely delivery of results.
If you do not have a skilled Change Leader in your business, I encourage you to obtain one to lead you successfully through the implementation process. A scorecard is a component of a strategic Performance Management system that no business should be without in today’s complex global business world. It identifies, measures, and allows you to make strategic performance decisions that will ultimately help your business maintain high performance in any economy.