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Why do balanced scorecards fail? Too many metrics, not enough forward-looking visibility, according to a recent analysis of more than 2,400 companies.
Janet Kersnar, CFO Europe Magazine
November 16, 2004
It's been well over ten years since companies first began using balanced scorecards to improve performance measurement and management, but are they better off? Not if you look at some recent research from The Hackett Group. In its latest analysis of over 2,400 companies, the Ohio-based business advisory company found that more than 70 percent of U.S. and European balanced scorecard implementations are failing their companies by not providing "concise, predictive and actionable information about how a company is performing and may perform in the future."
One reason is that there are far too many metrics out there — Hackett's research found that the average senior executive is inundated with 132 metrics (83 financial and 49 operational) every month. That's nearly nine times more than the number of measures landing on the desks of senior executives at best-practice companies. "Most companies are missing the mark because they aren't concise enough," says John McMahon, a Hackett senior business adviser. "The reality is that even the most complex businesses have only around 10 to 15 key elements driving performance."
Another problem is that most balanced scorecards are, well, not balanced. Hackett found that half the metrics in a typical balanced scorecard concern internal financial data with the rest divided between internal operating data and external financial and operating data. That leaves companies with far too much historical information and not enough forward-looking visibility, says McMahon.
Other experts agree. "Some companies may be using the term 'balanced scorecard' but not actually be applying the principles of it," reckons Gaelle Lamotte, vice president of the Balanced Scorecard Collaborative, a consulting firm, in London. "It isn't just metrics; that in itself is not a balanced scorecard. The metrics should come only after there is a clear understanding of what the company's objectives are, and the reasons behind those objectives."
None of this, however, is a concern for Martine Verluyten, CFO of Mobistar, a €1.2 billion ($1.6 billion) Brussels-based telecoms firm. Mobistar is among the fortunate few that sorted out its balanced scorecard a few years ago. Launched in 1998 — "when it was the fashionable thing to do" — Mobistar's scorecard has been refined continuously and today is used primarily "as a tool to communicate business drivers internally," focusing on a handful of financial and non-financial metrics affecting shareholders, customers, partners and society.
The key, says Verluyten, is the amount of time Mobistar spends identifying strategic aims and performance drivers. At the end of the day, she says, it's the inputs to the scorecard that count. As for the scorecard itself, "it's really just a chart that needs filling in."