Interview: Professor Mike Bourne
The Balanced Scorecard
SM
Hello, I am Steve Macaulay and welcome to this Cranfield School
of Management podcast. The balanced scorecard has become
well established as a means of measuring business performance.
Professor Mike Bourne has written a book The Balanced
Scorecard which explains what it is, its uses and how it can be
implemented. Joining me in the studio today from Cranfield
Centre for Business Performance is Mike Bourne and Basil Yaghi.
They discuss the balanced scorecard and its continued
development as a global management tool. So, let’s hear what
they have got to say.
BY
Mike, what is a balanced scorecard?
MB
A balanced scorecard is a way of representing measures from a
variety of perspectives and if you go back to the late 1980s, early
1990s, the issue there was everybody was measuring financial
performance – how we look to the shareholders. What the
balanced scorecard did was spread that a bit and it said, let’s think
of the other things we should be measuring. We should be
measuring how our customers perceive us, we should be
measuring how our processes are performing and we should be
measuring how we innovate and learn. So the balanced
scorecard started out life as a four box model about financial
performance, customer performance, process performance and
the performance of innovation and learning.
BY
Is it fair to say that the balanced scorecard was a response for the
companies focusing on financials and so the balanced scorecard
tried to bring in the non financial perspective into the performance
measurement practice?
MB
Absolutely, people like Robert Kaplan was saying at the time that
companies were being damaged by purely focusing on financial
performance, and of course financial performance is an output of
everything that we do. The only way you manage financial
performance directly, quite often, is by playing with things that you
shouldn’t really play with. If you cut back on your research and
development it affects financial performance very positively in the
short term, but of course it undermines the long term
Professor Mike Bourne
competitiveness of the business. There are a lot of aspects about
managing financial performance that had those detrimental
effects.
BY
So the balanced scorecard started its life as a performance
measurement system and as it has evolved, it transformed and it
evolved – can you tell us something about the evolution of the
balanced scorecard?
MB
Yes, I think it is a performance measurement framework – it
started life as a performance measurement framework and it has
been evolved several times since then. I suppose the first thing
that really came out of it was this idea of turning a balanced
scorecard into success maps or strategy maps. Those are simply
sets of objectives that link to each other. The way that they have
done it is to say well what are we trying to achieve? We can have
top level financial measures about profitability or how well we
perform for our shareholders, but the question is how do we do
that? The next level down is all about the customers – how well
do we satisfy our customers, what levels of service do we provide,
what levels of customer loyalty do we get? And to deliver that
there are a set of objectives: how do we do that? We have got to
have processes that are both effective and efficient. And to have
effective and efficient processes we need to innovate and learn.
So we have got success maps now which link the financial to the
customer, the customer to the process and then down into the
innovation and learning. That is how people represent a balanced
scorecard these days.
BY
How widely it is adapted?
MB
Well you have done some research – I know you showed quite a
high level of use in the UK, up at about the 60 per cent level.
Interestingly it depends how you ask people the question. When
Monica Franco and I asked the question in 2004, we found that
yes, about 50-60 per cent of organisations had a balanced
scorecard. But, we also found that only about 19-20 per cent were
really using it in anger and so lots of organisations have got four
box sets of measures. Most organisations have got KPIs, but not
a lot of organisations I think are really using the balanced
scorecard right across their organisation effectively.
BY
So we could say it’s still being used as a performance
measurement system rather than a performance management
system?
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Professor Mike Bourne
MB
Yeah, I know what you mean because Kaplin and Norton have
tried to take it to the performance management system level and I
think it is a performance management system. I think from my
experience, and again what you are showing out of your maturity
model, a lot of people have got a set of KPIs which are roughly
turned into four boxes. Many fewer organisations have really
taken it to a full blown success map, then really managed the
review of that success map and then cascaded those measures
throughout the organisation. So, I would agree with that.
BY
From what you have seen, does it work?
MB
Well, yeah, I believe it works. Getting the evidence for the fact
that it works is very hard to do. There are a number of studies
done by people who support the balanced scorecard that show it
works, but from an academic perspective it is quite hard to show
the balanced scorecard works. John Wilkes at Cap Gemini earlier
this week was talking with us and he made a really good
statement. He said it’s very hard to show that the balanced
scorecard is delivering, or performance development systems are
delivery good financial performance. But he said most well high
performing companies have good scorecards, performance
measurement systems, and he put it that way round. He said that
that is the link, that companies, good well run companies have this
thing. So, yes people do believe it works. I think that is the way to
look at it.
BY
So what are the limitations of the balanced scorecard and how
does it square with some of the other frameworks or other systems
in the market?
MB
I think a balanced scorecard is very company focused. I mean,
you look at how do our shareholders see us, how do our
customers see us, what do we think of our processes, what about
our innovation and learning? And from that aspect it’s really
looking at the organisation from the organisation’s point of view.
What I really like about the performance prism that the Centre
developed and that Andy Neely, Chris Adams and Mike
Kennerley’s book was all about, was how to look at it from a
broader perspective. The perspective that they have brought to
performance measurement and performance management is that
of the stakeholder – and so you start with a question: what do the
stakeholders in this organisation want and need? And that
means you can look at the owners, great, the shareholders, but
you can look at the customers as the balanced scorecard does.
You can look at other things like what do the people want, what
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Professor Mike Bourne
does the regulator need, what does society as a whole need?
And that is a much better place to start developing a set of
performance measures. Once you have done that, then the
organisation has got to say what is our strategy, what are we here
to do? But it has got to actually deliver what the stakeholders
want. Once you have got that strategy sorted out then you
cascade into the organisation and say our processes need to be
right, so our processes need to match our strategy. Our
resources and capabilities must match our processes, and then
finally what do we want back from our stakeholders to make this
work. And that is the way the prism works. I think it does give a
different perspective and it gives a perspective that works, not only
in business, but in not-for-profits and in the public sector as well.
BY
So the improvement for the performance prism basically is
bringing – one of the main improvements is bringing in the multi
stakeholder perspective, whereas the balanced scorecard mainly
maintains a shareholder forecast. One criticism that is levelled
against the performance prism and the balanced scorecard is that
they are not dynamic in nature. They are very good in exploiting –
in implementing or executing today’s strategy – so in a sense they
manage the internal consistency, the alignment in the
organisation. But they are very lousy in terms of external
consistency when the environment changes and we are living in
turbulent, high velocity environments – or some organisations are
living in that environment. There is a need for a new thinking or of
transforming this framework to be more dynamic.
MB
I think you have got to realise the balanced scorecard and the
performance prisms are frameworks and frameworks are, by their
very nature, static. So alongside a balanced scorecard or a
performance prism, you need a process for keeping them up to
date and I think it is absolutely right. How do prisms and
frameworks work? They work by creating a success map, a
strategy map. Success map is probably a better description of it,
that links the objectives together, so everybody in the organisation
can see it. That aligns people’s effort with the direction of the
organisation and that is the real success of them. I wouldn’t
criticise them for not being dynamic because I don’t think they are
supposed to be so. But I would say that if you are managing this
in an organisation you need a process that takes you forward and
makes sure that you come back to the scorecard – at least every
time the world changes and probably at least once a year.
Classic example of that, EDF Energy in the UK, South East of the
UK. They have got 11,000 people; they distribute about a third of
the UK’s electricity and EDF re-cascade their scorecard through
the organisation from the UK main board to frontline employees
twice a year. That is a major undertaking, but they do it to keep it
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Professor Mike Bourne
live and keep it up to date. You are absolutely right, if people just
look and say well that is a scorecard – the first question you
should say is when was it developed and is it still relevant today?
You can’t change your scorecard all the time because people in
the organisation are confused, but you do need to change it every
time the strategy changes, every time the organisation changes
and you do need to review it regularly to make sure that it stays up
to date.
BY
Any pointers or any suggestions how an organisation could – I
know you have done research on refreshing the performance
measurement system – any pointers or any suggestions how
companies could do it?
MB
I like the success mapping process because for me the success
mapping process is all about what are we trying to achieve and
how are we going to do it. You can do that with a balanced
scorecard, you can do it with a performance prism. What I like is
when you use that success mapping process, not just at the top of
the organisation, but in divisions, departments, down to team level
because then people understand what they are trying to achieve
and how their success fits into the success of the division or the
department and to the organisation as a whole. So, if you are
refreshing a performance measurement system, what I really like
is the creation of a success map and then the cascading of that
success map to front line teams because that is, I think, the most
effective way of doing it. What does it give you? It gives you a
set of objectives that people have bought into. What it doesn’t
give you is a direct cascade of the top level objectives and that
sometimes makes senior management quite nervous. I am quite
happy for them to be nervous because I think it is much better to
get the people’s buy in than the direct command and control of
what you want to achieve. So for me that is the way I like to see
organisations do it – it’s the way EDF do it, I think it is very
effective.
SM
Mike and Basil, thank you very much – a useful start to
understanding what the scorecard is about.
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Cranfield School of Management
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