Modern Balanced Scorecards:
Four generations of Balanced Scorecard

If you are still using this model of the balanced scorecard approach, please Think again. Unfortunately it does not work!!!! This model dates back to 1992 and, by 1994/5 it was discarded by Norton & Kaplan. Its a nice picture, but that is all.

Placed in groups = Balanced

Frankly, if you read beyond page 9 of the first balanced scorecard book you will realise that this model should never be used. Never, ever.

Since 1992 the balanced scorecard has developed through generations. There are actually four generations of balanced scorecards. Each serve their purpose, and each have benefits and consequences. In summary:

The first generation balanced scorecard is not really a proper balanced scorecard. It is simply a collection of measures in perspectives.  Such first generation scorecards are useful for operational measures but poor at describing the strategy and change.  They are rarely balanced. They often contain very static measures, as opposed to ones that are designed to drive performance. They are useful, as an operational tool.  Frankly, as every set of measures gets called "a scorecard", some are not even worth of the accolade "first generation".
Second generation balanced scorecards incorporate the basic cause and effect model across the perspectives.  They also use objectives before measures are developed.  They include the strategy map, but probably as a more basic performance driver model.  They start to reflect change in operations and they describe what drives performance.  They are more selective than first generation in their choice of measures.
Third generation balanced scorecards address what balanced scorecards were intended to address: Strategy, its management and implementation.  There are two views on third generation balanced scorecards:

1. Cobbland and Lawrie's Third Generation Balanced Scorecards that emphasise the Destination Statement, the problem of information asymmetry in setting objectives and targets and various implementation problems.
   
2. Norton & Kaplan's developments of their earlier versions which, though not generally recognised, emphasise the articulation of strategy in a strategy map, the alignment of the organisation and the Office of Strategy Management.

These two approaches have more in common than they have differences. Both contain strategy maps, cascaded through the organisation.  Both set levels of ambition over time, though Cobbland and Lawrie use the Destination Statement, whereas Norton & Kaplan do not.  Both generally use four perspectives (though Cobbland and Lawrie suggest dropping two for public sector organisations) . Both use strategic themes that cross the four perspectives and show the tension in the strategy.  Both use objectives, before measures. Both have scorecards that reflect the measures and targets, but also the the change projects that will bring about the increase in performance.  The projects can be organised into programmes of change that align with the strategic themes. They create conversation, generate understanding and help management learn from their strategy as they implement it.  Both put emphasis the management team agreeing the strategy and communicating it consistently. Both emphasise organisational alignment and communication.
Having been designing and implementing balanced scorecards since 1996, we have developed a number of enhancements, that build upon these approaches. Together, these are encapsulated in the Excitant Fourth Generation Balanced Scorecard approach.
Fourth generation Balanced Scorecards introduce a number of enhancements, beyond third generation balanced scorecards, that solve problems earlier versions have encountered and address recent thinking and experience.

Fourth Generation Balanced Scorecards start with a model of learning about the strategy as it is implemented.

They explicitly address how an organisation learns, rather than just control and management. Learning is fundamental to balanced scorecard thinking. They speed up the process of an organisation learning from its strategy. Avoiding large plans, the organisation is more amendable to change and more able to respond when changes are needed. This enables learning about the strategy and about the effect of performance.
They recognise how the organisation's approach to governance affects strategy maps and balanced scorecard design.The organisational learning approach reinforces the need to keep the name of the fourth perspective "Learning and growth".That is why the fourth perspective is called "Learning and growth". If it is renamed it undermines how the organisation learns. The focus on learning fundamentally changes how these balanced scorecards are designed, introduced and used.

Fourth Generation Balanced Scorecards create the space for both leadership and management.

Leadership creates the space for your people to perform. Management is making sure it happens. The fourth generation approach explicitly describes where leadership and management play a role in performance management.
To support the leadership and management, Fourth Generation Strategy maps and Balanced scorecards have an "Organisational values" perspective. This underpins the existing four perspectives and incorporates the organisation's values as a driver of performance and change. Organisational values are represented by a lower, fifth perspective that underpins the learning and growth perspective. We have used this approach since 1998.
Our approach invites you to both lead and manage. This is built into how our fourth generation balanced scorecards are designed implemented and operated.

Fourth Generation Balanced Scorecards address both the discipline and culture of performance. They encourage judgement and evidence

“Measure mania”, “the tyranny of targets, “silo working” and “feeding the beast” are symptoms of a poor performance management culture. Of course, you need the discipline of performance management to keep a grip on the organization: but how do you unleash the potential of your staff to perform to their best?
The discipline of performance is about doing the basics. Evidence is needed to ensure you have the facts so you can manage. The basic information to make decisions. Having that grip, without burdening the organisation: without causing more problems that benefits.
The culture of performance is about getting the best from your people: unleashing their potential. Creating the space for your people to perform.
Judgement is what we pay our experienced managers for. So how do we build it? How do people learn? How do our staff develop their judgement supported by evidence. Combining judgement and evidence in the scorecard supports learning at the operational level .
Quality of conversation precedes quality of learning.

They have a tangible vision. This describes how the management expect the environment and the organisation will develop through time.

The Tangible Future is a tool of discussion designed to develop conversation amongst the management team of the organisation's future. To ensure they are clear whe5re they agree, where they disagree and where they are uncertain. The Tangible Future looks forward to describe the environment and the organisation at several chosen points in time. In this respect it is like a Destination Statement. But the Tangible Future goes further than a Destination Statement.
The future is uncertain and managers do not conceive a single It does not assume a single destination at any point in time. The Tangible Future includes assumptions, uncertainties and risks: These are not absolute, but include places where the market might change direction, where there are assumptions about the environment, identifies the uncertainties that need to be understood and risks to be mitigated.
Tangible Futures exploit value chain analysis to ensure a clear view of the strategy will influence the stakeholder community and the strategy will add value to the organisation and to its customers.
The Tangible Future sets the level of ambition and rate of change the organisation wishes to achieve. It also identifies items for the external perspective.

They include an external perspective. This has two parts:

Measures and targets have a context. This context is vital to ensure that the measures and targets stay relevant as the environment changes. It also makes it much easier to compare departments, regions or countries that have the same measures but are in different situations.
They use External Predicting Indicators. These External Predicting Indicators (EPIs) are used to monitor the external environment for indications that the assumptions behind the strategy has changed or that the environment has altered substantially. These are derived from the Tangible Future and Strategy map. The EPIs ensure that managers are plugged into the environment in which their strategy is being executed so that when they are reviewing the strategy with their strategy map, they are also conscious of the potential of their environment to change.

Incorporate social impact and environmental impact.

We incorporate social and environmental impact without destroying the cause and effect model across the original balanced scorecards perspectives. We recognise that these are a consequence of the organisation's activities and behaviour.
Environmental impact, is added as an external perspective alongside the financial perspective. Social impact can be added above the customer perspective. This represents the wider impact on society or the community than is represented by the customer perspective.
We retain the environmental and social impact question that the other balanced scorecards perspectives ask. What is the financial impact on the company? What do our customers want? What do we have to do well to achieve this? What do we have to learn and grow as an organisation to do this well? How do Social impact and environmental thinking affect our organisational values. These questions embed corporate social responsibility into the strategy and the social and environmental perspectives capture the consequences.

A clear simple public sector and third sector model for strategy maps using existing balanced scorecard perspectives.

Many seem confused about how to use strategy maps in the public sector. We don't understand why they are confused as it is very simple as our approach explains. We call our approach “The three ball juggle”.  The public sector strategy map model understands the tensions and need to juggle the three balls of:

1. Serving the public, community or partners,
2. Managing the finances, delivering services economically, and
3. Satisfying the demands of regulators, politicians, governance and fund holders.

Many public sector and third sector strategy maps lose the underlying cause and effect model. Ours does not lose this important component. We have a clear simple and logical model that preserves the cause and effect model, so you can describe strategy and show what drives performance. It works for any public sector or third sector organisation. We call it the three ball juggle. You will find it in the various public sector balanced scorecard case studies and examples.

Well developed techniques

These techniques are well developed. We have been using some since 1998 whilst others are more recent. Every client we work with will fit on this ladder somewhere.  Most of our clients use our fourth generation balanced scorecard with some aspects of fourth generation (though occasionally they need help getting past generations one and two first).  If they can only reach some aspects of fourth generation at the moment, we leave them legacy, and aspiration, to reach the other aspects when they are ready.