Summary by Lorrie Ramirez
Master of Accountancy Program
University of South Florida, Summer 2002
The Balanced Scorecard framework was proposed in the early ‘90s by Robert Kaplan and David Norton to facilitate the translation of strategy into action. This framework is a short document that summarizes a set of leading and lagging performance indicators grouped into four different perspectives: financial, customer, internal processes, and learning and growth. This idea of having some sort of a balanced picture of performance is not new. Many companies in France have been utilizing a related tool known as Tableau de Bord for over fifty years. This article provides a comparison of these two tools and highlights some of the advantages and disadvantages of each.
The Tableau de Bord in France
A tableau de bord is a dashboard such as the one in an automobile or an aircraft. The Tableau de Bord measurement system materialized in France at the turn of the century. Process engineers were looking for ways to improve their production process by developing a better understanding of cause-effect relationships. This same principle was later applied at the top management level, giving senior managers a way to monitor the progress of business, compare it to the goals that had been set, and take corrective action.
The initial objective of giving managers a brief overview of key parameters to support decision making, has two important implications:
1. The Tableau de Bord cannot be a single document applying equally well to the whole firm - since each subunit has different responsibilities and goals it should have a separate tableau de bord .
2. The various Tableau de Bord used within the firm should not be limited to financial indicators - operational measures tend to provide better information on the impact of local events and decisions and thus on cause-effect relationships.
The Tableau de bord should be developed in the context of each unit’s mission and objectives. This involves translating the unit’s vision and mission into a set of objectives from which the unit identifies its key success factors (KSF). These KSF are then translated into a series of quantitative key performance indicators (KPI).
→ Objectives → KSF → KPI
In order to give managers the information they need to make decisions, the Tableau should primarily contain performance indicators that are largely controllable by the subunit. Subunits should simultaneously collaborate on interdependent tasks. These areas of interdependence should be noted and reflected in the choice of indicators monitored at the subunit and company levels.
The Tableau should report actual performance on a small number of indicators. Conciseness is essential - you don’t want to overload management with too much information. The report should cover the period since the last report and may include present cumulative performance since the beginning of the year. Actual performance should be measured against a predetermined level selected on the basis of past performance as well as external benchmarking. The time period of the report should be relevant to the unit’s responsibilities and the nature of the data. Monthly revisions are recommended for top management.
The Tableau de Bord and its processes could:
Provide each unit manager with a periodic, brief overview of the performance of the unit to guide decision making.
Inform the next level up of the subunit’s performance.
Force each subunit to position itself within the context of the company’s overall strategy and the responsibilities of other subunits and to identify corresponding KSF and KPI.
Contribute to structuring management’s agenda and directing managerial focus and discussions.
The Concept of the Balanced Scorecard
The Balanced Scorecard originated in the concept that no single performance indicator can capture the full complexity of a company’s performance. Financial and non-financial indicators cannot substitute for each other. Financial measures are lagging performance indicators, but have two important benefits: (1) they represent the impact of decisions in a comparable measurement unit - money - which allows aggregation of results across units and (2) they capture the cost of tradeoffs between resources as well as the cost of spare capacity. In general businesses exist to provide value for shareholders, making financial measures a vital parameter. Improvement of non-financial measures should lead to superior financial performance.
Though numerous organizations were already monitoring non-financial measures, Kaplan and Norton proposed a framework, the Balanced Scorecard, with three important characteristics:
1. It presents in a single document a series of indicators that provide a more complete view of the company’s performance.
2. This document is supposed to be short and connected to the company’s information system for further detail.
3. Instead of listing indicators in an ad hoc manner, the Balanced Scorecard groups the indicators into four perspectives of the company’s performance that are all linked to its vision and strategy (financial, customer, internal business processes, learning and growth).
Four Perspectives of Company Performance
The financial perspective focuses on shareholder interest, whether or not the company is generating enough return on investment and
building shareholder value. The other perspectives focus on how a company can succeed financially. Financial success can occur in two ways:
(1) creating value for customers and (2) sustaining this value over time.
Each perspective has a small set of performance indicators. The content of each must be adapted to the circumstances of the company as well as reflect the company’s mission and strategy. Not every company has the same strategy and therefore must track different performance indicators. The Balanced Scorecard concept can achieve a dual purpose of customizing the Balanced Scorecard to the subunit by identifying its own set of indicators to act on and aligning the subunits within the company’s overall vision and strategy.
Main Benefits of Implementing Such a Tool
The Balanced Scorecard summarizes four different perspectives on the company’s performance in a single, succinct document.
Balanced Scorecards and Tableaux de Bord group a small set of selected indicators into one concise document.
The four perspectives also allow managers to keep an eye on the way performance is achieved. The Balanced Scorecard in particular highlights trade-offs between measures.
The Balanced Scorecard is a way for a company to communicate and reinforce its strategy through its ranks.
A firm’s Balanced Scorecard can be translated into localized scorecards for lower-level units, thus cascading the strategy and creating a set of nested performance management systems.
Quantitative data are not used as an end in themselves but rather as a means to understand and improve the underlying activities. The Balanced Scorecard contributes to learning by structuring the agenda for meetings and discussions about this data.
The process of developing a Balanced Scorecard is beneficial in itself. Many companies realize through this process that they lack a clear view of the strategy they are pursuing or of its key success factors. In addition, if too many views of the firm’s strategy exists, the process of developing a Balanced Scorecard can help to work out a clear and shared view of what the company is trying to achieve.
Did the French Tableau de Bord Have It All?
Conceptually, the Balanced Scorecard developed by Kaplan and Norton and the French notion of the Tableau de Bord are quite similar. But in practice, the Tableau tends to fall short for the following reasons:
1. The French Tableaux tends to overemphasize financial measures and contain fewer non-financial measures than books on the subject recommend.
2. The Tableaux are significantly longer than the ideal Balanced Scorecard and those recommended in textbooks.
3. Many companies chose primarily internal goals and targets with comparison to the previous year’s performance or this year’s budget as opposed to systematic benchmarking of best-in-class performers.
4. Writings on the French Tableau are over forty years old, but fail to highlight the important lessons we have learned over the past few years. The measures described in books tend to be internally influenced rather than externally. In addition, most texts refer to the company’s or subunit’s mission and objectives rather than its strategy as we would call it today.
5. French managers seem to have fallen into the trap of using the Tableau as a device to support management from a distance and management by exception rather than using it interactively to create an agenda for discussions and meetings. This has caused the Tableau to lose much of its power and interest.
Grouping Indicators Into "Perspectives"
Some French authors feel that the Balanced Scorecard is a special case of the Tableau de Bord. They base their argument on textbook emphasis of the need to tailor the Tableau to each company and each manager within the company; thus, structured sets of indicators do not exist. However, Kaplan and Norton’s Balanced Scorecard proposes four generic sets of indicators making this approach seem far more rigid as well as disregarding important dimensions of performance.
This is not necessarily a limitation of the Balanced Scorecard model. Some of the indicators needed to address "other" dimensions can often be included with the four boxes in the proposed framework. These four boxes are presented as a framework and not as a constraining straitjacket. Nothing prevents a company from adding boxes, but part of the Scorecard’s power comes from its conciseness and clear presentation. Lastly, having an existing framework helps to protect users against two dangers: the danger of having only one particular perspective and the danger of missing one of the four dimensions proposed in the Balanced Scorecard.
The introduction of a Balanced Scorecard to a company means introducing change. Change is not always viewed as a positive force and can be difficult when it involves performance issues and tampers with the balance of power within the company. Companies trying to implement a Balanced Scorecard can encounter the following difficulties:
The realization that top management cannot articulate a concise and shared view of the company’s strategy.
Developing and maintaining a Balanced Scorecard can create a workload for many people.
Top managers interested in implementing such a tool may encounter cynicism among their employees when the idea is introduced.
Companies may face resistance motivated by a desire to protect turf or power base.
The Balanced Scorecard highlights trade-offs and brings increased transparency, which can be threatening to some managers.
Management must be consistent in its decision to widen its perspective from a narrow emphasis on financial measures. This can be difficult because managers must continually reinforce the broader view despite missing financial targets and the desire to revert to old and familiar ways of thinking.
The Balanced Scorecard is a powerful tool that can aid managers in translating strategy into action. However, it should not be a tool to support management from a distance or management by exception, nor is it a substitute for sound strategy or clear focus in a firm. This tool can help by forcing management to articulate a strategy and key success factors and focusing manager’s attention on the satisfaction of these elements.
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