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Why the Balanced Scorecard is Just as Effective for Small and Medium Sized Businesses

by Mario Bognanno on February 21, 2020

The real question isn’t whether the Balanced Scorecard (scorecard) is manageable or even suitable for small and medium size businesses (SMB’s), it is whether the scorecard process takes too much time, is too complex for, and requires resources beyond their reach.

When your scorecard includes up to 25 objectives with 30-50 measures and over a dozen initiatives the “pain of maintaining the process” may overwhelm the “perceived value of the process itself”. This is especially true if you are in a small or medium size organization where resources are limited. The next generation scorecard approach I’ve discussed in past blogs and webinars, is a simple scorecard format that can achieve the same strategic value but alleviates the level of effort required to maintain. Scorecards that have 10 objectives and measures with as few as 5 overarching initiatives have been used to address this concern for the typical SMB.

Beyond the composition of the BSC itself, some have argued that SMB’s do not need strategy; they are transactional organizations. The argument goes “who needs a multiyear plan – we know our business, customers and capabilities, and can react to market changes as they arise”. Strategy, conceptualized in a scorecard, is a forward-looking document that forecasts the future (3 to 5 years) and by use of measure, targets and initiatives provides a hypothesis – the definition of the expected future – that can be tested against current measurable reality. This ability to test the strategy with real time data is not only useful, but can be argued, is more critical for small and medium size businesses that rely on agility to compete. SMBs can and need to assess strategic performance and quickly react to the changing demands because their resources are limited and competition is strong. SMB’s ability to react quickly to fundamental changes in the market or in reaction to competitors is critical to their survival. This ability to understand the environment and the agility to change can be a matter of organizational life or death.

Another concern is the administration of the scorecard itself. Some argue that the scorecard is “too costly for SMBs” to design and administer. The first concern can be addressed by careful design of the scorecard itself: Focus on the “critical few strategic objectives” not the many important ones. The second concern can be addressed by “automating the reporting process and distributing the reporting tasks”. Finally, better planning of, and conduct of, the strategy review process can focus the meeting on “problem solving and remedial actions” rather than a reporting on the performance results.

Expectations are (or should be) that the administration of the scorecard in SMBs can be less time consuming and more participative than in larger organizations. For example, organization leaders can find efficiencies in the design process (4 to 6 weeks verses 8 to 12 weeks) but may also be more efficient by serving double duty as subject matter experts in the ongoing review and evaluation processes. Progress reporting using a fit for purpose software like ESM can dramatically reduce the time and effort in the reporting process. Strategy review meetings are generally held monthly or quarterly and with ESM, organizations can prepare and deliver progress evaluations in the week following the end of the review period. This will result in a shorter “decision-to-implementation” cycle critical in managing in the fast-moving SMB environment.

The reality is that the faster change occurs in your organization, the more robust and timely the strategy management systems needs to be. The scorecard provides an excellent way to keep small and medium size companies on track by providing virtually real-time management of strategy.

Topics: Business Strategy Strategy Management Strategic Alingment

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