In an era when environmental concerns are at the forefront of global discussions, businesses are being called upon to integrate sustainability into their operations. Developed as an extension of the traditional Balanced Scorecard (BSC), the Sustainability Balanced Scorecard (SBSC) aims to provide businesses with a tool to align their environmental, social, and economic objectives, driving positive impact while ensuring long-term success.
The Genesis of the SBSC
The concept of the BSC was first introduced by Robert Kaplan and David Norton in the early 1990s as a framework to measure business performance beyond financial metrics. The BSC aimed to provide a more holistic view of an organization’s health by incorporating four hierarchical perspectives: Financial, Customer, Internal Processes, and Learning & Growth.
A decade later, as sustainability became a critical global concern, scholars started looking into the possibility of integrating sustainability considerations into the BSC. They agreed on the potential of extending the focus of the well-established BSC to include measuring business performance through the lens of environmental stewardship, social responsibility, and ethics. Thus, the concept of the SBSC began to crystallize.
When it comes to the best architecture for the SBSC, there have been conflicting discussions ever since the concept was introduced. Two major approaches took prominence: one is to add a fifth perspective to the traditional BSC that was dedicated to sustainability; the other is to integrate sustainability objectives and KPIs into the already existing perspectives.
A 2009 study showed that in the fifth perspective approach, sustainability KPIs tend to be overlooked by management in organizations with no established sustainability culture. That is why the four-perspective approach can be a safer choice, especially for organizations that are only starting to integrate sustainability in their measures.
In a 2021 article, Kaplan supported the four-perspective approach, introducing a suggested restructuring of three out of the four perspectives to make them more relevant to environmental, social, and governance (ESG) elements:
From “Financial” to “Outcomes” to include environmental and societal objectives besides the financial aspect
From “Customer” to “Stakeholder” to reflect the value of different members of the whole ecosystem
From “Learning & Growth” to “Enablers” to encompass the various capabilities across all stakeholders in the ecosystem
Reaping these sustainability integration benefits can be a bit of a long shot, and further studies are needed to prove such benefits even exist. However, the only way to reap said benefits is to plant the seeds of sustainability integration. To help accomplish this, the SBSC can be a potent tool that allows organizations to measure, manage, and optimize their sustainability performance. As global challenges such as climate change, resource depletion, and social inequality loom larger, businesses must go beyond profits and consider their broader impact. The SBSC empowers organizations to embrace sustainability as a strategic imperative, paving the way for a more responsible, resilient, and prosperous future.
For more on utilizing the Balanced Scorecard, The KPI Institute has developed the Certified Balanced Scorecard Management System Professional to help organizations maximize the tools’ potential. And if you are interested in expanding your toolkit further, consider subscribing to smartkpis.com and gain access to the world’s largest database of documented KPIs, which includes a thorough collection of sustainability metrics.
All performance frameworks—whether it is the Balanced Scorecard (BSC), Objectives and Key Results (OKRs), Management by Objectives (MBO) or the Performance Prism—have a shared DNA and purpose: to create synergy in the organization to optimize key results. However, two important questions need to be asked: which performance framework should a company implement and what should one consider when selecting a performance framework?
A well-defined performance framework enables the organization to achieve its desired goals, and having various performance frameworks in hand can make it a bit tricky to choose the right one. Thus, one might be tempted to try implementing what big companies such as Google have implemented and attempt to do the same within their own organization without contextualizing the company culture, size, and business nature.
This article will illustrate the four things to consider when selecting a performance framework for the organization.
It would be silly to start furnishing an empty room without first understanding its intended purpose. Is it going to be for dining or a personal workspace? The same thing can be said when selecting a performance framework. Understanding the company’s goals and objectives is crucial as it will give you a sense of direction. For example, if the company’s goal is to have a disruptive, innovative product or achieve fast growth, then you might consider the OKRs framework as it will enable you to set challenging objectives and provide flexibility to support innovation. On the other hand, if the company’s objectives gravitate toward stability and sustaining the current market share with modest growth, then the BSC is more suitable for this type of environment as it will assist in cascading the objectives from the top down and preserve company status quo while supporting growth at the same time.
Consider the company size and structure.
When we talk about company size, we are not only talking about its capital and asset value, but we are also talking about its workforce size and how they are structured into various functions. If the company has a huge hierarchical structure where each employee is expected to perform a very specific and specialized task that is repetitive and operational, then selecting a framework that exhibits this nature of work will enable the company to create clarity and focus for the employees. A framework to consider for this purpose is MBO, which is defined by The KPI Institute as “clearly setting and defining objectives agreed by both management and their employees.”
Involve internal stakeholders in the selection process.
Highly engaged employees produce substantially better outcomes, are more likely to stay at their organization, and experience less burnout, according to analytics and advisory firm Gallup, Unfortunately, employees can’t reach that level unless they feel that their day-to-day tasks are linked to the company’s purpose and that they have an impact on the results. A good performance framework should be able to convey this to the employees. Asking employees what they value the most and involving them in the decision-making process will result in a highly engaged organization and limit the silo work environment. A performance framework should not be imposed but rather tailored to serve the company’s goals and its human capabilities.
Review and assess the performance framework.
Just like a strategy review, a performance framework needs to be reviewed regularly and not ossified and treated as set in stone within the organization. As the company’s strategy, size, and market grow and change, the performance framework needs to be updated and changed as well.
In conclusion, selecting a performance framework is only the first step. It is a tool for enablement, not a purpose. All performance frameworks can be customized to fit the company’s needs—these are not off-the-shelf products that must be implemented as-is. Nevertheless, other factors play a huge role in executing performance frameworks, such as employee engagement, company structure, and business processes. All these factors influence and impact which framework to select.
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This article was written and submitted by Ms. Wedad Alsubaie, who works at the Strategy Management Office of the National Unified Procurement Company in Saudi Arabia.
Today’s fast-paced and rapidly changing business environment is characterized by uncertainty and the interdependence of economies, societies, and markets. Thus, organizations are facing numerous challenges that can threaten their ability to survive and thrive. According to the Harvard Business Review, the key forces stressing the business landscape include the pandemic and geopolitical instability along with other factors, such as technological disruption, climate change, and globalization. Unsurprisingly, given these difficulties, business leaders decided to focus on organizational resilience in order to adapt to this dynamic environment, leverage opportunities, and deliver sustainable performance improvement.
In a report from Cranfield School of Management, Professor David Denyer defines organizational resilience as the ability of an entity to anticipate, prepare for, respond to, and adapt to incremental change and sudden disruptions to survive and prosper. His paper underlines the idea that organizational resilience requires special control over multiple independent and redundant layers of protection for all critical assets (people, products, property, information) and compliance (standard operating procedures, processes, and training).
Organizations can increase their resilience by adopting various frameworks and models (see Figure 1).
To increase resilience, organizations should develop capabilities, competencies, and principles that are aligned with their chosen resilience framework or model. Some of the capabilities and competencies that can enhance resilience include leadership commitment, risk management, business continuity planning, incident response planning, communication, training, and awareness, according to Stephanie Duchek’s article from 2019. In addition, the six principles stated by Harvard Business Review for enhancing organizations and decision processes to become more resilient can be consulted (see Figure 2).
The International Consortium For Organizational Resilience (ICOR), a global consortium of business continuity and resilience professionals, developed a model based on ISO 22316. The model is composed of three dimensions (leadership & strategy, preparedness & managerial risk, and culture & behavior) with nine strategies directly subordinated to them and six sets of corresponding behaviors. One benefit of the ICOR model is its structured approach to resilience management, which can help organizations better understand their vulnerabilities and develop more effective risk mitigation and response plans. The model also emphasizes the importance of ongoing evaluation and improvement of resilience plans, which can help organizations stay ahead of evolving threats.
There are some limitations to the ICOR model that may not be suitable for all types of organizations— particularly smaller or less complex ones—because, in comparison with big enterprises, most SME owners do not have access to resilience training and tools or their employees are not involved in the development of strategies to increase an entity’s resilience, as stated by the International Labour Organization. Additionally, the model may not adequately account for potential cascading or interdependent risks.
Despite its limitations, the ICOR model is widely used to measure resilience in a variety of industries, including healthcare, transportation, and manufacturing. It is important to mention that this model is not used in most cases by itself, but rather in combination with one or more frameworks or models mentioned above, depending on the needs and the industry in which the organization operates.
To thrive in today’s tumultuous business environment, organizations must develop the capabilities and competencies necessary to anticipate, prepare for, and respond to disturbances effectively.
Browse our website for more in-depth articles that tackle corporate performance and other similar topics.
Like a captain steering a ship through a stormy sea, leadership plays a crucial role in shaping the organizational climate, which in turn affects the individual’s level of commitment to the organization, job satisfaction, and productivity. Creating a positive organizational climate requires management to focus on promoting autonomy, freedom, and support. Organizations can use internal environment scanning methods such as employee surveys, focus groups, and organizational culture analysis to gain insights into how leadership affects the work environment—knowledge that can then be used to create a positive climate to enhance employee knowledge, behavior, and effectiveness.
Critical factors such as interaction with team members, behavioral patterns, and the quality of the leader’s information—which covers updates, decisions, and strategic plans that they need to communicate to their team—all shape the organizational climate. Leadership behavior can significantly influence employee attitude and behavior. Studies have shown that managers who acknowledge their team members’ accomplishments can improve the perception of the organizational climate and leadership quality.
Conducting an internal environment scan can help assess the current state of the organizational climate and identify opportunities for improvement. Theorganizational culture analysis, a method of internal environment scanning, involves reviewing the values, beliefs, and behaviors of employees and aims to gain insights into how leadership is perceived and how it is influencing the culture of the organization.
One company that values itsorganizational culture and recognizes the significant role of leadership in shaping the work environment is Netflix. The company empowers employee decision-making by widely sharing internal documents, such as memos on title performance, strategy decisions, and product features.
Additionally, Netflix prioritizes open and direct communication by investing in coaching and modeling behaviors. To promote good decision-making, the company emphasizes the need for highly effective people and fewer management layers. The company encourages a “context not control” culture where leaders are expected to coach, set context, and provide feedback instead of micromanaging while employees make their own decisions. To foster this culture, Netflix values certain behaviors and skills in its employees, such as good judgment, selflessness, courage, communication, inclusion, integrity, passion, innovation, and curiosity.
The company employs a feedback system that includes surveys and focus groups to continuously improve its operations. A recentinitiative to promote work-life balance involved the implementation of an unlimited vacation policy, which was contingent on fulfilling job responsibilities and goals. To set a precedent, leaders take vacations themselves and urge their teams to do likewise.
As we can clearly see from Netflix’s example, leadership has a significant impact on the organizational climate. This highlights the importance of internal environment scanning to identify opportunities for improvement.
Improve your organizational climate by enrolling in ourCertified Strategy and Business Planning course. Gain valuable insights into the process of internal environment scanning and learn how to identify areas for improvement within your organization.
Traditional quality management and business excellence practices are proving to be ineffective when used in the context of complex processes. Additionally, these initiatives are defamed for generating a lot of papers or soft documents without any analytical or added value in respect to automation and productivity. Due to that, the focus must now shift towards a quality movement that will make industries ready to fully utilize the advantages of the digital economy.
End-to-end digital integration leveraging newer technological innovations, like big data, the Internet of Things (IoT), cloud computing, simulation, and Cyber-Physical Systems are helping in virtual space connecting with physical systems and in making real-time decisions and strategic planning. Industry 4.0 refers to the reform, transform, and perform industry with the help of IoT, especially AI and ML. This use of advanced information and communication technology (ICT) for industrial growth is now often called the ‘fourth industrial revolution.’
The concept of BSC was developed decades back when technology was just at its nascent stage. Currently, the concept needs to be revisited else it will only become a subject of academic interest. The performance measurement model should be such to evaluate the quality aspects of an organization in the context of Industry 4.0. The framework used should develop virtual tools to assess weaknesses in the current systems.
The impact of Industry 4.0 can help in enhanced customer value proposition through a better understanding of customer needs, data-driven product development, automated manufacturing, and continued product usage data monitoring. These will have benefits like better CRM, new strategic partnerships, expansion of the geographical reach of products and services through digital channels, as well as the development of new client bases and better retention of old clients. Hence, any performance scorecard should help customers in terms of availing of superior-quality products at low prices and better service.
The perspectives of BSC, especially internal processes and learning and growth, should evaluate the quality aspects of an organization in Industry 4.0. It should ensure that strategy formulation, strategy execution, and performance measurement system are aligned to new technologies so as to reap the following benefits:
Improve Productivity:enabling to do more with fewer means, such as in production; faster production in a cost-effective manner with given resources can give more and should help in less downtime and improve Overall Equipment Effectiveness.
Flexibility and Agility: for instance, it should help in easier scale up or down output as a smart factory, making it supposedly easier to introduce new products or processes.
Regulation: complying with regulations in industries should not be a manual process; instead, Industry 4.0 technologies need to be leveraged to automate compliance, including tracking, quality inspections, serialization, data logging, and more.
Customer Experience: Industry 4.0 should be used to quickly resolve customer issues and offer them more choices.
A traditional approach of BSC leads to fixed or orthodox KPIs which are not relevant in today’s technological scenario. The concept should revolve around improving processes using the latest IT; this includes having new KPIs. The main hurdle emanates from the harsh reality that the BSC concept owners are traditionally performance management consultants and they are not fully aware of Industry 4.0’s percept and concept, barring a few jargon. This eventually restricts their vision to old and proven approaches which are not helping in providing that competitive edge to the industry. The present winning strategy is flexibility and response to the fast-changing and uncertain ecosystem which can be achieved through Industry 4.0 technology.
There is a need to develop a scorecard or maturity level assessment tool that evaluates an organization and its adoption of the benefits from Industry 4.0 while taking the given budget and deliverables into consideration. This can happen only when we involve tech specialists in developing and keeping the tools themselves dynamic so that these may undergo revision after around every 12 months to keep abreast of the advancements in technology.
Read more articles that discuss the Balanced Scorecard and other interrelated concepts here.
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Editor’s Note: This article has been updated as of September 17, 2024
