Originally Posted Dicember 1 2011
As we have seen, the Balanced Scorecard is a schema to arrange KPIs. In a whole company/group/corp. perspective, it’s quite clear how the indicators should be defined and why they’re relevant to management. The upper management should define them in detail, targeting all the four areas, identifying all the relevant aspects. These may well differ from company to company, from business to business, but they all share one feature: they are all companywide indicators. If they’re not companywide indicators, they target some very relevant, large areas.
If we drill through the company, though, we may incur in two cases.
If a company is organized in business units (i.e. almost every function is replicated for each BU) than the BS can easily be applied to the BU level. The same could apply where various autonomous entities are present, for example, a retailer with different shops, or a hospitality corp. with many hotels.
Otherwise, if the company is organized along functional lines, the BS will soon cease to be relevant as we go into smaller organizations. It’s hard to imagine how a Customer or a Financial area indicator could be relevant for the manager of an assembly station on the manufacturing line (this point is controversial, but I stick to this interpretation).
From an implementation perspective, there are some consequences. The company BS is not some sort of aggregation of lower level BSs. If lower levels BSs exist, they may include different indicators than top level and their granularity is going to be rather low.
So, the performance management model can be rather messy, and it’s a management task to sort it out. How to do that is the topic of the next post.