18 September 2009 • 7:00 am

Leading Questions

At the center of the balanced scorecard concept is the observation that measures of organizational performance have traditionally been lagging indicators; measurement of actual performance after the fact. Management accounting is focused on describing performance during a time period that has ended – last quarter, last year, year-to-date, etc. And while there is nothing inherently wrong with lagging measures, they are of limited use to an organization’s leaders. All they do is tell what has already happened.

The ‘balance’ in balanced scorecard refers to the ideal of providing leaders with a balanced portfolio of lagging and leading performance indicators. Leading indicators are valuable because they help managers form an expectation of what will happen, and enable testing of the cause-and-effect hypotheses that are at the core of the strategic planning process. But identifying candidate leading indicators and selecting from among them requires careful consideration and a healthy skepticism of apparently easy answers.


21 August 2009 • 7:00 am

The Hypotheses of Strategy

A running theme in these posts has been that of strategy as a hypothesis. I’ve often asserted that all organizations need to change in response to change in the environment; to realize new opportunity and to defend against threat. I’ve said that the organization that fails to change its value proposition will lose relevance, and ultimately become extinct. Most leaders understand intuitively that their job is not only to only to maximize short term results, but to ensure the long-term viability of the organization. Of course, desperate times may cause some leaders to focus excessively on the short-term at the expense of the long term. Balancing focus between the two is one of the great challenges of organizational leadership.

The normal view of strategy as a hypothesis is oriented to the organization itself; a set of assumptions about what the organization should do, and what will happen as a result. Leaders who are engaged in a strategic change program are properly concerned with monitoring those things that are (nominally) within their control; the actions of the enterprise and its constituent parts. Measurement systems, dashboards, and balanced scorecards convey in effective detail the intent of the strategy (through the selection of measures), and the extent to which the hypothesis is playing out (the actual value of the measures relative to established targets). This is all well and good. But it is a disturbingly short sighted view of strategy.