Re: Balanced Scorecard

["Ken Macur" <kmacur@virchowkrause.com>]

Hello group,

One of the interesting things about the balanced scorecard (BSC) is how, in theory, it addresses issues related to systems thinking. That is, Kaplan and Norton (the authors of BSC) note that you can't measure one thing (e.g., sales) without "balancing" related accounts and related issues (e.g., accounts receivable, gross profit, bad debt expense, customer satisfaction).  Thus, if the sales department is only measured on sales, then accounts receivable might skyrocket, gross profit plummet, bad debt expense soar, and customer satisfaction erode . . . all while sales increases (this period). 

>From Kaplan and Norton: "What you measure is what you get: the measures you use strongly affect the behavior of your managers and employees."

Furthermore, they assert that the Balanced Scorecard "establishes goals but assumes that people will adopt whatever behaviors and take whatever actions are necessary to arrive at those goals" (emphasis added). 

This is carrot/stick; Skinnerian psychology at its worst. Consider the following comments paraphrased from Brian Joiner (Fourth Generation Management), when faced with numerical goals/quotas, one of three things will happen:
   1. People will improve the system
   2. People will manipulate the system
   3. People will manipulate the data.

Dr. Deming had no problems with measuring things.  One element of the system of profound knowledge was to understand variation (in measured results). 

For a longer discussion, see http://www.mdaszko.com/articles.html

Cheers. 

Dr. Kenneth M. Macur, C.P.A.
Virchow Krause Consulting
115 South 84th Street, Suite 400
Milwaukee, WI 53214
414.777.5537 (office)
608.295.5012 (cell)