17 July 2009 • 7:00 am

Scorecard Blues (plus Three Other Colors)


To my chagrin, the term ‘scorecard’ is widely used in both the disciplines of performance management and strategy execution, and without further qualification, has an imprecise variety of meanings. To some, it may mean a large collection of indicators of operational performance. To others, it is an ambiguous shorthand for ‘balanced scorecard,’ which is a well-developed set of related ideas and practices around strategy management and execution. Ambiguity comes from the fact that to some, the term ‘balanced scorecard’ means simply a collection of measures that has been balanced according to some real or imagine scheme. On far too many occasions, I’ve been approached by a conference attendee with a request to review and comment on his so-called ‘balanced scorecard,’ only to find that the proud offering is a only collection of operational measures with no connection to strategy. This is the basis of my Scorecard Blues. So let me be blunt: if a set of measures has been selected without the prior development of a strategy map, it cannot be properly called a balanced scorecard.

Even without the qualifier of ‘balanced,’ a ‘scorecard’ is seen as a group of measures, and / or the visual representation of those measures, and / or the tool for managing measurement data. Many software tools called ‘scorecards’ have been developed to facilitate the collection, analysis, and presentation of scorecards, both for operational and strategic use. Because the term ‘scorecard’ has so many diverse meanings and uses, it simply cannot be used alone without further explanation. But there is one trait that attaches to nearly every individual’s own definition of the term ‘scorecard.’

The lowest common denominator of nearly all ‘scorecards’ is the ubiquitous red – yellow (amber in Europe) – green summary indicator scheme (hence RYG). I am not aware of any research into the origin of the RYG scheme for summarizing measure data. Of course, the scheme is universally used in traffic control, but the meanings are simple: red simply means stop, and green simply means go. I suspect that the first use of colors to summarize data was in aviation and later in aerospace, where green means that an indicator is within its normal operational range, with yellow and red varying degrees of abnormal results. This origin suggests the basis for a similarly ambiguous term, ‘dashboard.’

It is easy to see the appeal of using this scheme to summarize a large portfolio of operational measures. At a glance, one can observe the RYG summaries of dozens or even hundreds of indicators and quickly know which ones are in need of immediate attention. The ability to translate and display a measure as an RYG indicator is a basic capability in every scorecard software tool I’ve seen.

‘Scorecards’ predate ‘balanced scorecard,’ and as the BSC discipline has evolved and matured, so has the sophistication of BSC reporting. Adaptation of ‘scorecard’ tools to BSC reporting has been rampant. But the inevitable application of RYG to BSC reporting has been problematic. Most organizations that I’ve worked with have struggled with RYG indicators.

The BSC development process identifies strategic objectives as the basis for subsequent selection of measures. During the first several months of the life of a BSC, an organization may have difficulty in selecting effective measures and obtaining measure data; strategic measures are often very different than operational measures, and require that new information sources be developed. New measures do not always lend themselves as easily to target setting; measuring an objective to ‘Manage turnover of key employees’ not only requires data on turnover, but definitions of ‘key employees,’ and what ‘management’ actually means. Setting a target for the concept of turnover is far from intuitive.

Even when a target can be set for a particular measure, the target is probably is only useful to delineate between the green and yellow indicators. I’ve had to preside over many spirited (e.g., angry) and wasteful discussions of the right distinction between yellow and red for a particular measure. One of my colleagues has even advocated using only red and green indicators to his clients, but with limited success.

Because effective BSC programs require transparent and frequent communication of strategic performance among selected stakeholders (e.g. employees), members of leadership teams can become quite defensive about the colors. In the language of scorecard color, red means ‘bad’ for operational indicators, but not necessarily so for strategic objectives, where ‘red’ may be interpreted as ‘objective needing attention.’ Cultural attachments to the meaning of ‘red’ often causes contortions to avoid putting a red indicator on a strategy map.

In practice, I’ve arrived at a couple of conclusions and approached to using the RYG scheme on BSCs:

  1. Leadership teams insist on having RYG indicators, but need to be guided to a shared set of definitions of their meanings.
  2. Strict numerical targets don’t work very well for setting the colors.
  3. Without guidance, a leadership team will become obsessed by color setting and distracted from productive strategic management efforts.
  4. A healthy set of strategic objectives will have a good mixture of the colors. A strategy map with all green objectives isn’t believable. A strategy map with all red objectives is too demoralizing. Either extreme is dysfunctional.
  5. Because there is subjectivity in target setting, it is better to have leadership teams come to a subjective agreement on the RYG setting for each objective on a strategy map, each time measures are updated. The discussion that leads to a consensus decision often helps the leaders uncover and understand root causes of deficient performance far better than any automatically set indicator will.
  6. Over time, the RYG indicators of strategic performance become far less important than the rich discussions of strategic objectives, cause and effect, and initiatives in the strategic management process.

Is your organization using RYG indicators on its scorecards? Does everyone agree on the meanings of each color? Do RYG indicators help or hinder strategic management? Please comment below.

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