Use an 'unbalanced scorecard' instead

"Are we there yet? Are we there yet? Are we there yet?" - Donkey in "Shrek 2"

Linking performance to strategy

There's an expression that most managers have heard at some point along the way: you accomplish what you measure. So it's reasonable to think that if you measure how well your organisation is executing its strategy, you'll achieve that strategy. Reasonable, but in reality rarely done.

The flip side of that saying provides a key to a fundamental problem in business today: you very likely cannot accomplish what you do not measure, or more accurately, what you do not measure correctly.

According to Michael Hammer, the guru of modern process engineering, strategic operational measurement remains "an unsolved problem". In an article in the spring 2007 MIT Sloan Management Review, Hammer observed that in recent years "companies have developed much more sophisticated strategic measurement systems, based on such tools as balanced scorecard, key-performance indicators, computerised dashboards and the like. Nonetheless … there is widespread consensus that they measure too much or too little or the wrong things."

The core problem is that performance measurement and management are rarely tied to strategic objectives. A July 2007 report by CFO Research Services in collaboration with Deloitte noted: "The link between performance metrics for more discrete projects - as opposed to day-to-day operations - and strategy is not always perfectly clear at many companies."

The result is that the work that employees do may be disconnected from, or at worst sabotaging, your strategy. Even if you've accomplished the first critical step discussed in the previous article of establishing the right framework to execute, without clear, measurable strategic performance outcomes, your organisation risks losing sight of the forest for the trees.

"The kingdom of Far Far Away, Donkey. That's where we're going. Far ... Far ... Away."

The real fairy tale has many believing that performance measurement approaches designed to focus on operational and financial metrics could provide the magic crystal ball that tells all about the state of the organisation's strategy performance. The most popular of these approaches is the "balanced scorecard".

Scoring the Scorecard

Originally developed as a performance-measurement tool by accounting pundits, the scorecard is now being increasingly touted as a framework for strategy implementation. Due to strong marketing by its proponents and ripe timing in a business climate burnt out from TQM (total quality management), the balanced scorecard spread like a panacea in the past decade or so. Yet its medicine is far from universally prescribed, with a healthy dose of "ifs, ands or buts" from expert analysis.

Most critiques of the scorecard centre on its structure and application. Process-improvement consultant Arthur M Schneiderman asserted in the Journal of Strategic Performance Measurement (January 1999) that "The vast majority of so-called balanced scorecards fail over time to meet the expectations of their creators." They fail primarily, Schneiderman posited, because they lack the basic structural requisites to guarantee that the right things go on the scorecard and are deployed throughout the organisation.

Analysts say that many scorecards fall short by underestimating the importance of less tangible measures such as quality in leadership, employee engagement and cultural alignment. Even researchers that favour the balanced scorecard for performance management point out its weaknesses for strategy execution. A 2005 technical report by The Chartered Institute of Management Accountants determined that:

78 per cent of companies that have implemented strategic performance measurement systems do not assess rigorously the links between strategies and performance measures;

50 per cent do not use non-financial measures to drive financial performance;

79 per cent have not attempted to validate the linkages be-tween their non-financial measures and future financial results

The fundamental problem with the scorecard is that it's only one piece of the total strategic-performance picture. It inherently lacks specific performance objectives designed to measure the execution systems, management competencies and decision-making systems that the specific strategy requires. Without addressing processes for strategic-resource allocation through a portfolio-management system and integrated execution planning, the balanced scorecard creates what seems like an obvious question: how exactly do strategies magically get executed, and how would you know you're executing on the right things?

An engaging approach

My colleagues and I have found that strategy execution is the discipline of engaging the strategy with a carefully considered portfolio of projects and programmes that will bring it to life. We call this discipline "engagement", a critical imperative in the strategy-execution framework we outline in our book "Executing Your Strategy" (Harvard Business School Press, 2008).

You can only commit to your strategy by engaging in the appropriate project portfolio. Resources are limited, most painfully so in an ailing economy.

As with Star Trek Captain Picard's command to "Engage", if your ship isn't propelling itself in a single direction with all hands on deck to make strategy happen, then you've crossed over into fairy-godmother territory, wishful thinking.

This is the second part of a series on strategic execution by William Malek, strategy execution practice leader at the APMGroup and co-author of the 2008 Harvard Business Book 'Executing Your Strategy: How to Break it Down and Get it Done'. The first part was published on February 23.