Unbalanced Scorecards, Please
I recently had an opportunity to address the attendees at a Balanced Scorecard conference, and I was once again reminded of how important the right metrics are to driving effective execution and, specifically, how distorting a purely financial set of metrics can be. Bob Kaplan and Dave Norton are to be commended for their ongoing efforts to give management teams tools that properly represent the entire picture. I only have one gripe: I think they should call for an unbalanced scorecard, not a balanced one.
Our work in innovation makes clear that unless companies differentiate beyond the norms of the competitive set in which they participate, they cannot get paid a differential return. They simply lack the bargaining power to gain it. Too many other offers are “good enough,” and the customer can play vendors off one against the other to get a bargain price.
The goal of vendors, therefore, should be to create such a separation from their competitive set that customers will not be willing to substitute another offer for theirs. This is a non-trivial undertaking, particularly because competitors are quick to copy any innovation that appears to be leaving them behind. The only way to well and truly leave your competition behind is to go where they are either unable or unwilling to go. That is what our innovation strategy models are all about.
Now, any company taking this path can benefit greatly from a balanced scorecard provided it is unbalanced. That is, it should profoundly overweight the differentiation-enabling elements in the strategy and systematically underweight all other values. Otherwise, management teams will commit to too many initiatives in too many areas and lose the velocity and energy needed to escape their competitors’ gravitational field.
In this context, one thing stands out: Being best-in-class should never be the goal! Here’s why. If you are talking about your differentiation zone, then you want to escape the class altogether—be out of class! And if you are not in your differentiation zone, then you do not need or want to be best in class, just good enough to meet market standards. Any further efforts are a waste of resources that could be better used on further differentiating yourself on your primary vector.