The balanced scorecard is misleading. Perhaps it’s even a misnomer. Developed by Robert Kaplan and David Norton, it was popularised by management consultants (including me!) in the 1990s. The philosophy helps to balance executives’ attention on a spread of KPIs (key performance indicators) instead of fixating on, say, only a financial indicator or a growth target.
The model’s generic areas of focus are financial, customers, internal processes, and innovation and learning. A good consultant would facilitate clarifying your vision, then devolving this into an objective for each area, which then cascade into KPIs and key results for each objective.
For big companies, Balanced Scorecard came like a panacea to corporate silos and their myriads of often conflicting targets and metrics. The model helped simplify complicated plans and focused execution on what mattered most.
All fine and well for big business, but this is invariably the completely wrong approach in a small business. Executing a strategy—or even tactical plans—with attention on so many areas and KPIs is precisely what blocks many entrepreneurs from success.
The concept of “scarce resources” is not merely a concept in small business, but a lived, daily reality. As owner-managers in small businesses, every decision we make should be to move the needle on just one strategy or key objective. There’s no luxury of a corporate head office staffed with MBA graduates fussing over exotic models. We cannot afford to distract ourselves from a singular focus.
If you’re familiar with Balanced Scorecard and you’re keen to apply it in small business, there is a hack solution. Instead of balancing the 4 perspectives with equal priority, arrange them hierarchically where the lower levels support and enable the higher levels.
Starting with financial objectives at the top (e.g. revenue, EBIT), identify the customer targets that will achieve this (e.g. NPS, CSAT), then the internal processes that enable these (e.g. cash cycle, conversion rates, quality), and lastly the underlying innovation KPIs that can improve all the higher-level metrics (e.g. suggestions per employee, time-to-market).
If you’re questioning why finance is the highest priority, then the more important question should be, why are you in business? With this adapted structure of finance as the priority, there’s plenty of room to serve the community and “make the world a better place”. If finance were not the top priority, you can’t achieve anything else. Even not-for-profit companies know this truth about the money.
If you want entrepreneurial success, prioritise one thing at a time.