SBSC: Blending Sustainability With the Balanced Scorecard

Written by Islam Salahuddin on August 24, 2023. Posted in Balanced Scorecard, Organizational Performance

Image Source: EKATERINA BOLOVTSOVA | pexels

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.

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How to Build an SBSC

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:

1. From “Financial” to “Outcomes” to include environmental and societal objectives besides the financial aspect
2. From “Customer” to “Stakeholder” to reflect the value of different members of the whole ecosystem
3. 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.

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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.

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Why It Is Time To Revisit the Sustainability Balanced Scorecard

Written by Fakhri Ramadhan on November 9, 2021. Posted in Balanced Scorecard, Organizational Performance

Image Source: Freepik

The world is moving towards a more sustainable business practice. Investors, advocacy groups, and academics have asked corporations to take on added purpose beyond the traditional pursuit of shareholder value. Even the business leaders from Business Roundtable stated that major companies are investing in their employees and communities because they realize it is the only way to achieve long-term success.

The fundamental concept behind this shift is the Triple Bottom Line (TBL), where companies must measure not only their financial performance but also their environmental and societal performance as well. The TBL concept is not new; the term had been coined by John Elkington in the 1990s. Later in 2003, Amanco pioneered in measuring the impact of its TBL strategy, building on the idea of Balanced Scorecard (BSC) from Kaplan and Norton. The new sustainability BSC included environmental and social dimensions in addition to the basic dimensions of the initial BSC.

Read More >> SBSC: Blending Sustainability With the Balanced Scorecard

In a recent article, Kaplan stated that the demands for sustainability today are even higher. In summary, there are three different perspectives from three main stakeholders categories:

• Customers: The customers’ preferences in every product category shifted towards more sustainable products. Over the past five years, there is a 71% rise in online searches for sustainable goods globally in countries with either developed or emerging economies.
• Employee: Reports of unsafe working conditions at Amazon warehouses caused many criticisms. Their employees protested for fair pay and COVID protection. This example reflects the importance of social and ethical issues. Fulfilled workers are more loyal and likely to stay compared to those who only work for a weekly paycheck. Worse, incidents like this would probably affect consumers’ perception badly and hurt the company’s brand image.
• Environment and social: As more consumers demand transparency and accountability, companies must consider the environmental and social aspects in every decision they make. For example, major fashion brands are beginning to pay attention to the demand for more sustainable practices.

The stakeholders have always played an important role in the business ecosystem. But in today’s post-pandemic era, the stakeholders expect even more from companies in terms of environment (e.g., sustainability, health) and social (e.g., inclusive, ethics, social welfare) aspects. As with any crisis, there are chances to learn and make a positive difference.

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This article aims to remind companies of the criticality of environment and social dimensions. Taking note of its importance, this might be the opportunity to revisit the idea of sustainability BSC. The sustainability BSC can be used as a groundwork for a future BSC that is environmentally, socially, and ethically responsible. 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.

Curious about more applications of the Balanced Scorecard? Click here.

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