Balanced Scorecard - Background Information

A few months ago I wrote a blog post arguing that the Balanced Scorecard (performance management system) was a great complement to improvement science.  I argued that the Balanced Scorecard, when implemented correctly, (1) describes the organization and (2) is used for action.  However, the post only listed the key attributes and did not describe these in detail.  Over the next few blog posts I will describe in more detail the balanced scorecard. 

The concept of the balanced scorecard (BSC) was first introduced in a widely cited Harvard Business Review article, “The Balanced Scorecard—Measures that Drive Performance (1992).”  In this article Harvard Business professors Robert Kaplan and David Norton argued that financial results do not accurately describe the health of the organization.  Financial measures are lagging indicators and, as such, are not effective in identifying the drivers or activities that affect financial results.  The problem was that companies used too many indicators and focused on a narrow slice of their organization, which meant they lacked tools to understand the trajectory of the organization.  Leaders within these organizations were often overwhelmed by too much information that came too late for them to make mid-course corrections.   Kaplan and Norton argued that measurement is an effective way to focus organizations, but that most measurement systems ignored the intangible parts of the system that drive the most value.  Companies had been collecting data for a long time, but Kaplan and Norton made two important contributions that vastly improved the effectiveness of performance management.  First, they developed a consistent framework for data collection.  Kaplan and Norton argued that organizations should collect data from four perspectives.

  • The financial perspective. Measures in this perspective should focus on whether the organization is generating financial value for shareholders.
  • The customer perspective.  Measures in this perspective should focus on whether customers perceive that their needs are being met.   
  • Internal processes perspective.  Measures in this perspective should focus on the behaviors that the organization must be great at to be successful.   
  • Learning and growth perspective.  These measures in this perspective should focus on efforts to improve. 

The data collected for performance management should not be a random set of measures, but should be carefully selected to represent each of the four perspectives. 

Second, the BSC is designed to communicate and monitor strategy.  Organizations that develop a BSC must be clear about the cause-effect relationships that make up organizational strategy.  In fact, prior to selecting measures and managing with the BSC a strategy map (a visual tool that displays the cause-effect strategy – example below) must be developed.  Once the strategy is clearly mapped a balanced set of measures is selected to monitor strategy execution. 

The purpose of the BSC is to track a broader range of measures that indicate how the organization is doing with respect to targets (e.g. financial measures) and whether the organization is achieving necessary growth in areas that will result in future performance (e.g. is the organization meeting customer targets). The BSC enables leaders to monitor and adjust the implementation of organizational strategy more regularly than just once per year.  The use of the BSC in nonprofits and government sectors requires that the customer perspective be the focus since value creation for customers is key (as opposed to shareholders or owners).  Thus, the financial perspective is seen as supporting the mission and vision of the organization rather than a central measure of success.

In education the BSC is almost always implemented as an accountability tool.  School districts publish annual scorecards with measures of student achievement (e.g. percent of students proficient of state tests), attendance (e.g. proportion of students absent), or parent engagement (e.g. proportion of parents attending conferences).  School districts set targets and color-code the scorecards based on whether they met the annual targets.  In several future blog posts I will explain why this is the least effective way to use the BSC (and may not even qualify as a BSC).  

How Does Achievement Vary with Income in Your State?

The New York Times published a piece at the end of April that revealed the variance in learning outcomes for students across the United States.  The findings reported in the article were based on data and articles published by Stanford Center for Education Policy Analysis.  Here is the key quote from the third paragraph, " Children in the school districts with the highest concentrations of poverty score an average of more than four grade levels below children in the richest districts."  The next paragraph pointed to even more troubling finding, " Even more sobering, the analysis shows that the largest gaps between white children and their minority classmates emerge in some of the wealthiest communities."  The researchers from Stanford further found that even in districts where students of different races came from similar economic backgrounds white students tended to perform better.  One of the authors, Sean Reardon, noted that in these cases it might be that white children unconsciously are tracked into more rigorous courses or given more challenging work.

The NY Times article came with some great data displays.  I have downloaded the data from Stanford and created a dashboard that allows users to select a single state and compare achievement (measured in grade-level equivalency) with various demographic factors of the district (e.g. median income, household in poverty). One of the things I learned by doing this is that not all states look the same.  For example,. the correlation of income with achievement in Missouri is much smaller than in Connecticut or New York.  

Hard Work, Not Hype

One of the few blogs that I follow on a regular basis is Stephen Few's Perceptual Edge.  Stephen Few is the author of several books on designing effective dashboards and is widely regarded as one of the most thoughtful and thought-provoking authors in the data visualization sector.  If you are remotely interested in data visualization you already know of Few and probably follow his work. 

However, what I want to reference today not Few's work on visualization, but a poignant post   that Few published in early January this year.  In this post, "There Are No Shortcuts to a Bright Future", laments that we are too enamored by magical solutions and we must "get down to the hard work of real problem solving."  Few is disappointed that hype has replaced hard work and drive for recognition has overcome satisfaction (of a job well-done). 

For the last few years we have seen this same ethos emerge as dominant in education.  Schools, policy-makers, and entrepreneurs are increasingly selling new and "innovative" technologies or teaching environments.  They are seeking and winning awards for "innovation".  However, as Saul Kaplan, author of Business Model Innovation Factory, wrote "it is not innovation until value is delivered."  It feels like "value" in education is increasingly about buzzwords and hype, not about whether kids leave better prepared for college or whether students fewer students have dropped out.  

Few's post reminded me that there are no shortcuts to a better future.  Whether we are doing are targeting Marginal Gains or Transformation we must invest time and energy.  Our success should be judged by results, not hype.