Balanced Scorecard > Using the BSC > Practical guidelines for design

The design of a Balanced Scorecard requires careful adherence to a process, combined with the subtle art of building a suitably positioned strategic framework, and the engagement and coaching of people for ownership and use. This article outlines a generic process which has been employed for a number of scorecard designs. Whilst variations always exist, it is intended to provide a basis from which a practioner may adapt and modify.

There are risks inherent in designing a scorecard, like any other management tool or process, without sufficient experience. Therefore, whilst articles such as this endeavour to provide you with practical DIY guidance, it is recommended that you seek professional help in understanding and possibly implementing these process steps.

The process will vary based on the organisation in question, the starting points already derived, and the desired outcomes being sought as a result of design.

Underlying these process guidelines are assumed levels of knowledge. If further reading is required, we suggest other articles as starting points, to help you understand What the Balanced Scorecard is?, [principles.html What the underlying principles of BSC are?], and [implementation.html What must be considered for effective scorecard implementation]

In this article, we will suggest a series of design steps for a generic and successfully used approach. If you are seeking to develop a more customised design process, we will then discuss variations of the generic approach, addressing each foundational principle.

Generic Design Steps

Clarify 2 - 4 strategic themes
Linkage diagram designed - with Strategic Objectives
Strategic Measures defined & pruned
Alignment with other scorecards
Projects & Initiatives determined
Move into implementation and review processes

Generic design steps in detail

The following notes are written for someone who will be closely involved in the construction of a scorecard. The intention is to convey some of the pragmatic experience we have gained through the design of many scorecards. For a broader consideration of design implications, you may want to move to Where to start, or to [implementing.html Using the Balanced Scorecard].

1. Strategic Themes determined
Strategic themes can be defined as the main pathways you will pursue to achieve your longer-term goals and vision. They should act as compelling compass needles, and address the most important opportunities or threats you face. Commonly a group will determine between 2 & 4 strategic themes as a result of a planning process. The time frame should be at least 12 - 18 months, i.e. it will be possible to continue to pursue these pathways for this amount of time. It should be possible to pursue them simultaneously, so that one does not depend on the success of another. To determine strategic themes, we often use a strategic planning methodology called "Thinking Outside the Bow".

Over the course of 1 - 2 days, it is possible through pre work, discussion groups and post it note exercises to capture 2 - 4 strategic themes

For advice on Strategic theme definition, go to Online Coaching

2. Strategic Road Map designed
This process involves the determination of objectives in each of your chosen perspectives, which will capture the cause and effect relationships between objectives. If constructed effectively, this should tell a clear story of how each strategic theme will be pursued.

Essentially the design of this stage involves agreeing on the perspectives to be considered, and then formulating linked objectives (or Critical Success Factors) You may choose to follow Kaplan and Norton's initial suggestions of 4 perspectives, namely Financial, Customer, Internal Process and Learning and Innovation. If you are a Government or not for Profit agency, see Balance of Perspectives in Customised Design.

Formulation of linked objectives will involve

asking a few critical questions repeatedly and in a particular order,
gathering input from the group,
massaging input into coherent objectives, and
defining the appropriate linkages.

The wording of objectives is also critical, and once again some simple distinctions makes a big difference.

For advice on design of linkage diagrams, go to [coaching.html Online Coaching]

3. Strategic Measures defined, pruned & owned
Defined
As for linkage diagram construction, this phase again involves asking some specific questions. With input from the group, it is useful to test measures against a few `litmus tests', to ensure they will be useful and practical.

This phase requires greatest scrutiny of the most desired behaviours and processes, because of the specific nature and impact of measures. The measures chosen will need to focus people on taking desired actions, and not on alternative, potentially opposing actions. See an example of this in What is the Balanced Scorecard.

At this stage it is useful not to let perfection get in the way of a starting point. In some cases it may be difficult to settle on a measure that works for everyone. Our experience is that it is better to agree to something, and have a starting point. Over time with active review, a better measure will emerge.

Pruning

Pruning is an important step in agreeing on strategic measures, because invariably the first draft of suggested measures would result in at least 30 or 40 measures.

A smaller number of measures will

provide greater focus on what is important
make the review and learning process more effective,
have an important psychological benefit.

A smaller number will seem more manageable to those who have not experienced a scorecard process before, and will potentially lead to greater comfort. A large number of measures sends a message of lots of extra work, leading to more cynicism or discomfort in the early stages of your scorecard introduction.

The process of reducing a large number of suggested measures requires ruthless and careful pruning, much as a skilled rose gardener trims just enough of last years bush, without overdoing it an leaving dead trunk.

Fixed rules about the number of measures are not appropriate. This number will be determined by the complexity and number of strategic themes, the number of people who have ownership of measures, and the extent to which scorecards are cascaded through the corporate hierarchy. With many of the scorecards we have been involved with designing, we encourage groups to aim for 10 - 15 measures with a realistic result being 12 - 20.

Ownership
Once measures have been pruned, owners need to be assigned to each measure.

An owner of a measure is the person(s) responsible for collecting and reporting progress data. This does not mean this person is the only one accountable for the results of that measure. Assigning ownership should not be seen as people putting themselves on the line, but rather a spreading of responsibility for the ongoing management and use of the scorecard.

This addresses two risks.

Sole owner, in which one person is given responsibility for collecting and reporting data for all measures. This diminishes responsibility across the management team.
Performance brandishment, in which the scorecard is used as a veiled attempt by a senior manager(s) to put people's heads on chopping blocks. This diminishes the opportunity to establish the scorecard as a vehicle for ongoing learning and review.

For advice on designing appropriate measures, go to [coaching.html Online Coaching]

4. Alignment with other scorecards within your organisation
Alignment between your scorecard and another at a management layer above or below yours will enable greater synergy across your organisation. The extent of alignment may be as simple as reflecting a similar strategic direction, or more thorough with the replication of some critical objectives and measures. This has obvious benefits because of the alignment of strategy and actions between divisions or functional groups. As well it can lead to more efficient review and learning processes
Alignment can be achieved in a couple of ways.

Use the existing scorecard as a starting point. Spend some time with your group interpreting the other scorecard, or have someone interpret it. Make a note of any objectives which are likely to be relevant when designing your own linkage diagram.

Likewise when you are defining measures, consider any aligned objectives, and test the existing measure to see whether it could be used as an appropriate measure for your own.

Design simultaneous scorecards. Conduct a design process at roughly the same time with both groups. As drafts are reviewed and discussed, ensure 1 or 2 stakeholders are involved in both, and gain their input into where synergy and alignment may be gained.

5. Projects & Initiatives determined
This stage crosses the boundary between design and implementation. The design thus far will have yielded a range of insights into how business could be conducted differently. Enacting some of these changes, and achieving some of the newly formed objectives will invariably involve some project based activities.

As with pruning of measures, the selection of a small number of these in the first instance will once again be more manageable, and ensure people's workloads are not suddenly doubled.

Customised Design

Cause and Effect
Applying cause and effect relationships encourage us to begin with the end in mind, and then move to increasingly greater levels of detail and articulation about how to get there.

This would therefore suggest that the bigger picture vision and mission should be clarified first. Determining the 1 - 4 main strategic themes would then follow this.

This first step has been omitted from the Generic steps for a specific reason. Many people who want to begin a Balanced Scorecard implementation are eager to see some practical and tangible outcomes. Working on the big picture therefore is perceived at the time as too time consuming, esoteric and unnecessary.

In time, once a scorecard method is being used, the group will potentially be more prepared to reflect on the larger end goals, and make any consequent refinements to strategy that are necessary.

Balance of Perspectives
As discussed in What is the BSC, the commonly used perspectives are appropriate in many instances. However, there are some instances in which the perspective are either altered, or their cause and effect relationships are modified.

Shared Service/ Corporate Services scorecards

The perspectives for an IT or HR function appear to work best with modified cause and effect relationships, and may look like this.

The thinking behind this is that Customer output it the ultimate aim of this function, that delivering customer objectives occurs within financial and resource constraints, that customer objectives and financial constraints are both considered when executing effective internal processes, and that learning and innovation will support all of the above.

An alternative series of relationships we have seen in use is as follows.

This appears to follow a logical sequence, however it tends to reinforce a more traditional perception of IT that it requires a bucket of money to do the stuff it needs to do, in order to satisfy it's customers.