Scorecard systems that help track performance have been around for years. So why do companies still use them incorrectly?
A new survey sponsored by a group of 10 organizations and associations confirms what might seem intuitive: scorecards are not static instruments. It all comes down to whether or not they are linked to strategy, says Raef Lawson, co-author of the survey and director of research at the Institute of Management Accountants. "Scorecards are meant to track the progress of a company trying to meet a goal. Companies that link their cards to budgeting, compensation, and feedback are more successful," he says.
The problem is that companies still have trouble making those connections. Using the six key principles outlined in the book The Strategy-Focused Organization — including tying budgeting and incentives to scorecard measures and tracking performance over time — the survey asked 193 companies whether they saw any benefit from their systems. Only 50 percent of respondents said they did.
One barrier is that executives are slow to accept scorecards as a vehicle for managing strategy, rather than another measurement tool, says David Norton, co-author of the aforementioned book, along with Harvard Business School professor Robert Kaplan. "There is no generally accepted structure to describe a strategy like innovation," he explains. The companies that benefit from scorecards, he adds, develop them with input from the executive team; inform the whole company, including shareholders, about the strategy; and manage the scorecard by making the necessary links.
Brendan Colgan understands the importance of using scorecards to provide feedback for managers. The CFO of Anderson Group uses a scorecard to monitor sales lost to competitors at one subsidiary. "It helps us identify where our competitors stand," says Colgan. "For example, if we have 60 percent of market share, we should have at least a 60 percent success rate each month."
Norton predicts that, as they did with quality management, companies will routinely incorporate strategy into their scorecard systems, probably within five years.