An extract from my “Implementing Winning KPIs whitepaper” which can be acquired from http://davidparmenter.com/how-to-guides)

Nobody has done more than Kaplan & Norton (K&N) to ensure that strategy is balanced, well thought through and is implementation is monitored and managed.

The Harvard business school paper was a master piece and the follow on book “Translating strategy into action – The balanced scorecard” a classic from inception.  As a writer I can appreciate the herculean effort Kaplan & Norton (K&N) undertook to amass so much case study material in such a short time.  However I have been concerned for over ten years now as to why so many balanced scorecard implementations fail to deliver when the concept of implementing strategy and having a balanced performance is surely a given with most of us.

With the final editing of my second edition of my KPIs book finished I now have time to address, for the first time the main differences between the ‘winning KPIs’ and the balanced scorecard methodologies. I will also discuss my reasoning for the BSC failure rate and argue that the BSC fraternity need to update their methodology.

The main differences

The more I delved and read and reread their material I constantly had a problem about the use of performance measures in the balanced scorecard framework.  The winning KPIs methodology states that:

  • Primary role of performance measures is to help the work force focus on the critical success factors of the business, day in day out.  Whereas K&N see the primary purpose of performance measures is to monitor the implementation of strategic initiatives.
  • You need to know your organisations critical success factors as these are the key to finding the KPIs. Whereas K&N do not mention of critical success factors in their work.
  • KPIs are all non financial, measured frequently and have five other characteristics and are thus rare, with less than ten in a business. Measures that are not KPIs are either result indicators, key result indicators, or performance indicators. Whereas K&N see all measures as KPIs.
  • You find your CSFs through mapping the relationships of the organisation’s success factors ignoring any attempt to place these success factors into BSC perspectives whereas K&N focus on a strategic mapping process where strategic objectives and success factors neatly fit into a BSC perspectives. A process that is stimulating to the intellectuals but of little practical use to the workforce managing their daily activities.
  • The main differences are the winning KPIs methodology has six BSC perspectives, environment and community and employee satisfaction are added the standard four perspectives of K&N
  • The BSCs perspectives are seen as a guiding force ensuring you have balance, the CSFs and KPIs are seen as transcending more than one BSC perspective.  In fact the “timely arrival and departure of planes CSFs of an airline impacts, I argue all six perspectives.  Whereas K&N see the perspectives as firm boundaries which you can slot strategic objectives neatly into.  Strategic objectives are seen as succinct statement describing what an organisation needs to do well (success factors) in each of the four perspectives in order to implement our strategy.
  • The process of finding the right performance measures can be done in-house, whereas the balanced scorecard approach, due to its complexity is frequently lead by consultants and has created a major industry of providers of software and BSC consultants.

The differences between the two approaches are summarised in the table in Exhibit 1:

Exhibit 1: The difference between the BSC and winning KPIs

Winning KPIs

BSCs

Emphasises the importance of implementing strategy in a balanced way.  Total agreement with K&N

Emphasises the importance of implementing strategy in a balanced way

Strategy mapping is seen as an intellectual process with questionable value.  This is replaced with relationship mapping of success factors with multiple relationships.

Based around strategy mapping where success factors neatly fit into an individual BSC perspective

Knowing ones CSFs is seen as fundamental to knowing what to measure

Critical success factors not addressed in their work

This is replaced with relationship mapping of success factors with multiple relationships

Cause and effect mapping in strategy mapping

Performance measures are brainstormed from the CSFs

Performance measures are brainstormed from strategic initiatives

Six balanced scorecard perspectives through the addition of ‘staff satisfaction’ and  ‘Environment and the community’ perspectives

Four balanced scorecard perspectives

KPIs have seven characteristics and are thus rare. Other measures are either result indicators, key result indicators, or performance indicators

Key Performance Indicators not defined.  All measures are called KPIs and thus seen as important to the organisation.

Less than 10 KPIs in a business

Many KPIs in a business

Measures seen as either looking at the past, the here and now, or the future

Performance measures are either Lead / lag KPIs

A philosophy that says it can be implemented by an in-house team

An approach that is largely consultant based, requiring much intellectual rigour

No applications required. At some stage a reporting tool will be needed to monitor and report on measures.

A myriad of BSC applications that support the strategy mapping and cascading performance measures leading to hundreds of performance measures without any linkage to the organisations’ CSFs.

The KPI book is a tool kit for implementation, containing checklists, agendas for workshops, a framework for a database, report formats and guidance notes on all twelve steps.

The BSC supporting material is largely an academic based approach with few  implementation based tools provided