The Strategist

Obscure numbers: Why scorecards don't help make business better

10/19/2021 - 06:56

Technologies enable us to collect a huge number of indicators. The accuracy of numbers creates the pleasing illusion of no ambiguity, and our ability to receive and process them creates an equally pleasing sense of control. But there are times when metrics don't help a company achieve its goals, but rather drive it away from them.

The danger of indicators comes when they are not just monitored to check that everything is going as it should, but are turned into a measure of an employee's performance, and therefore of their success. If performance is also made dependent on remuneration, the company's activity is jeopardised. Faced with the choice of improving performance targets or working on what really matters, employees will choose performance.

Linking performance to pay is a common practice. But whether financial rewards motivate people is debatable. And it is even more questionable whether linking performance to pay can increase performance.

Command and control

A balanced scorecard is essentially a system of control. And companies need command to operate effectively.

Indicators help flesh out strategic thinking, provide guidance and help set direction. They are like a navigator in a car: if you follow them blindly, you can end up in a traffic jam, in a section of road being repaired, or on a broken road that we did not intend to drive on. If the numeric targets are met but the aim is not achieved, we should not congratulate ourselves and relax, but change the targets.

Direct observation

The dashboard of a car provides all kinds of information, but when driving, most of the time drivers look through the windscreen at the road and other vehicles. Similarly, no company should ignore the need for a balanced scorecard, but rather develop a well-designed system can encourage reckless driving.

If there is a problem with a major customer, it is unlikely that the current month will see an increase in satisfaction rates, even if that is the target you are trying to improve. It is better to go to the customer without delay and find out what happened. That way you will know a lot more. Nothing can replace direct observation. A manager should have a good idea of what is going on inside and outside the company, and the balanced scorecard is only one source of information that you can use to do that.

Cause-effect relationships

Another difficulty is that the balanced scorecard does not explain cause-effect relationships. Business organisations are complex adaptive systems trying to survive and succeed amongst a multitude of other organisms, each with different objectives and interactions with which have unpredictable consequences. Each cause is itself a consequence and each consequence a cause, and they are connected by feedback loops that sometimes weaken and sometimes strengthen. Change implies a careful analysis of how and where to intervene in the system.

In an adaptive organisation, each member analyses both the indicators themselves and what lies beyond them, and always asks the question "Why?" Indicators provide us with information, the interpretation of which allows us to understand what is happening. Doing the right thing requires wisdom, a quality that only humans have.

Based on “Action Inquiry. The Secret of Timely and Transforming Leadership” by  Bill Torbert

< >

Thursday, May 16th 2024 - 03:10 HSBC starts looking for new CEO