How we read the Balanced Scorecard

From mission to initiatives

The scorecard is one piece of a larger system. Before it come the decisions that give it meaning. After it comes the work that moves it.

• Mission: why the company exists.
• Vision: where it's headed, over one to three years.
• Strategy: what you'll do and, above all, what you won't.
• Strategic themes: two or three sentences the whole team uses as a reference.
• Strategy map: your objectives, linked by cause and effect.
• Balanced Scorecard: each person's objectives, KPIs and targets across the four perspectives.
• Initiatives: the projects that move the KPIs.

A good strategy is defined as much by what you stop doing as by what you do. A scorecard that tries to measure everything tells no one what matters.

The four perspectives are a chain

The four perspectives aren't parallel boxes. What your people learn makes better processes possible. Better processes improve what customers get. And customers drive the financial results.

• Learning: what your people need to know and the tools they work with.
• Internal processes: what your company has to do really well on the inside.
• Customers: what your customers get from you and how they experience it.
• Financial: what the company wants to achieve in numbers.

That's why financial problems show up late. When sales drop, the cause almost always started months earlier in the perspectives below.

The financial and customer perspectives are usually the easy ones to define. Internal processes and learning are the hard ones, and that's where strategy is decided: what you'll do on the inside to reach the result.

A scorecard doesn't start with a number

It starts with an intention. The number exists to make that intention visible and to start a conversation when results drift.

• Objective: the result you want, in plain language.
• KPI: the signal that tells you whether the objective is on track or drifting.
• Target: the value you expect at the end of the period.
• Relationships: which KPI in another team, or one level up, it contributes to.
• Calibration: checking that the target is clear, measurable, and something the person can actually move.

Four tests for a good KPI

Beyond being specific, measurable, achievable, relevant and time-bound, a good KPI passes four tests.

• It's genuinely demanding. If it hits itself, it moves nothing.
• It doesn't measure what the role does by definition. A job's basic duties aren't KPIs.
• It reflects the value of the role. If someone hits 100% of their scorecard, they should have delivered the value expected of their role. If they didn't, the scorecard is miscalibrated.
• It holds up against Goodhart's law. When a measure becomes a target, it stops being a good measure.

Every KPI needs its counterweight

You don't solve Goodhart's law by measuring less. You solve it by pairing each KPI with the one that balances it.

An example: if you only measure days of inventory, someone will cut them by not restocking. First service level drops, then sales, and finally customer retention. The counterweight to days of inventory is service level: the share of orders shipped complete.

When you pair two KPIs, watch three things:

• Timing. The damage from optimizing a single KPI rarely shows up in the same period.
• Weight. People go where the weight is. Tilting the weight on purpose is a decision, not an accident.
• Both sides. Each side of the balance needs one KPI that predicts and one that confirms.

KPIs that predict and KPIs that confirm

Lagging KPIs measure results that take time to show: sales, customers won, days of inventory. They usually live in the financial and customer perspectives.

Leading KPIs move fast, and the person controls them: companies contacted, response time to leads, shipping errors. They usually live in internal processes and learning.

A scorecard with only lagging KPIs is accounting: it tells you what happened when you can no longer change it.

Few KPIs, well chosen

Between 8 and 12 KPIs per scorecard is a good range. With more, relevance gets lost and no one can keep up. With fewer, it's hard to reflect the value of a role.

The goal is for each person to own their KPIs.

How aldo puts it into practice

aldo is the operating system for your company's strategy. Every person has their own scorecard across the four perspectives, every KPI connects to the company goal, and the whole team sees, every week, how they're tracking.

KPIs can pull their data from the tools your team already uses: HubSpot, Salesforce, ClickUp, Excel, Odoo, Google Sheets, Kommo and Monday.

If you run your scorecard in a spreadsheet today, read aldo or a Balanced Scorecard in Excel.